Many farmers rely on Furnished Holiday Lets (FHL) as a vital source of extra revenue to bolster the farm’s core activities.
In recognition of this, FHLs have enjoyed beneficial tax treatments provided they meet certain conditions.
These include relief from Capital Gains and Inheritance Tax, as well as benefits from capital allowances, pension contribution advantages, and the ability to offset finance costs against business income.
But these advantages have recently come under fire from the government as they claim FHLs restrict access to rental property and open market accommodation in rural areas for local people.
Changing the tax regime, the government feels, would lead to a change of use for these properties, open them up and helping ease the rural housing crisis.
Although these changes are not yet set in stone – they were announced in the spring budget but haven’t made it into the resulting Finance Bill – there is a strong chance they will be enacted at a later date, particularly if we see a change of government on July 4.
With that in mind, Ian Parker, agricultural tax expert and director of Whitely Stimpson, is advising farmers with FHLs to get on the front foot and explore their options early.
According to Ian, the options include:
- Accept that the current tax advantages will be removed and continue with holiday lets
- Let the accommodation on a “normal” residential tenancy arrangement
- Sell the holiday lets and distribute the cash to children/other family members
- Pass the cottages to children/other family members tax-free, with holdover relief from CGT
- Sell the holiday cottages and roll over the cash CGT-free within three years into trading assets
- Sell the holiday accommodation property and claim Business Assets Disposal Relief (BADR), which brings the CGT rate down to 10%.
Ian said there are a number of drawbacks with all of these options and deciding which is best will depend on the individual circumstances of the farm.
He said:
“If the tax benefits are removed, carrying on as holiday lets might work for second homeowners but it is unlikely to be attract to farm businesses running a commercial enterprise. Changing to a residential tenancy might require a change in planning status of the property and doesn’t generate the same income as a FHL, and selling a property on or close to the farm means losing control of who owns it. However, in circumstances where holiday lets can be sold, there are advantages in being able to roll the cash CGT-free into other farm or tourism assets that still achieve good tax reliefs, so that could be a way forward for some farmers.”
Ian added that anyone concerned about the future of FHLs should speak to an expert.
“There are a number of options to discuss which will help put farmers’ minds at rest,” he said. “If this issue is a concern for you, get in touch and we can look at the best way forward.”
Contact us
To discuss FHLs or any other form of tax planning, contact Ian on (01295) 270200 or email ianp@whitleystimpson.co.uk.
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