The preferential tax treatment for UK properties, which meet the tests to be treated as Furnished Holiday Lettings (FHL), will cease at the end of the current tax year.

The general qualifying conditions to secure FHL tax treatment are:

• Let on a commercial basis with a view to realising a profit;
• Available for letting to the public for at least 140 days during the relevant 12-month period;
• Actually let for at least 70 days during the period, ignoring any lettings of more than 31 days.

Income Tax:

The 2009/10 tax year is the last one that can create a loss that can be set against general income.  Losses in subsequent periods will only be relievable against property rental income for the same year, or carried forward to set against future rental profits.  It may therefore be worthwhile incurring essential expenditure before, rather than shortly after 5 April 2010, to take advantage of the loss against general income.

Capital Gains Tax Relief:

1. For a disposal prior to 5 April 2010, Capital Gains Tax rollover relief will be available, but not for disposals after this date;
2. Holdover relief is available for a gift of a FHL property prior to 5 April 2010, but not afterwards;
3. There is better news for Entrepreneurs Relief.  Initially, it was suggested that this too would be unavailable for a disposal after 5 April 2010.  Now relief will be available for a disposal of the property up to 3 years from the date that the business ceased.  There is a deemed cessation on 5 April 2010 for FHL business still going at that date.  Clearly, there is a great deal of uncertainty and concern about future rates of Capital Gains Tax.  Many suspect that the current 18% rate will increase in the near future and therefore delaying a sale could result in a higher tax charge.  As always, the date of Exchange of Unconditional contracts is the relevant tax point for Capital Gains.

Inheritance Tax:

Business property relief for FHL properties will also disappear from 5 April 2010, but this may be an academic point for many.  HMRC has generally taken the view that FHL businesses did not actually qualify for relief at the time of death anyway because of the lack of involvement in the business by many owners.

Please contact your usual Menzies contact for further guidance.