Sadly it is becoming clearer that the 2020 summer holiday season will be significantly affected by Covid-19 with many bookings being cancelled, however perhaps there is hope for the New Year and Easter 2021.
For those reliant on the income it is a worrying time. From an Income Tax perspective, making sure that you file your 2019/20 tax return for the tax year just finished, as soon as possible, will be incredibly beneficial. It will allow you to plan your finances around any balancing tax liabilities due next January 2021, and potentially allow you to make a claim to reduce your payments on account towards 2020/21 on the basis that your income will be reduced.
For the current 2020/21 tax year, those with accommodation which previously met the conditions to be a furnished holiday let may be wondering how it will qualify for this year with potentially no bookings.
Meeting the criteria
To meet the criteria, the number of days that the accommodation must be let is 105. The property also needs to be available to let for at least 210 days during the accounting period or tax year. However there is a ‘period of grace’ election that can be made if the accommodation met the criteria to be a furnished holiday let in one tax year, but does not meet it in the next, or next two tax years. Therefore, as long as the accommodation met the criteria in the 2019/20 tax year just ended, then an election can be made in respect of the current 2020/21 tax year to treat it as qualifying, if required. Hopefully a further election will not be needed for the 2021/22 tax year!
Why is this important?
Qualifying furnished holiday letting businesses are entitled to claim Capital Allowances and the income counts towards the owners Adjusted Net Income for personal pension contribution allowance purposes. In addition, when a qualifying furnished holiday let is sold, Capital Gains Tax Roll over Relief and/or Entrepreneurs Relief should be available.
If you are carrying out some work on the property while it is unoccupied, general repairs or renewals may create a loss which can be carried forward to offset against profits from the same business.
Alternatively, although it may not be a favourable time, you may be considering selling the property to release some much needed funds. Tax advice should be sought before doing so, as there are likely to be Capital Gains Tax consequences. From 6 April 2020 new Capital Gains Tax reporting rules also came into force for the sale of UK residential property – read more here.
For further advice about Income Tax for furnished holiday let businesses or Capital Gains Tax, please contact a member of our tax team on email@example.com or call 01242 776000 and one of the team will call you back.