Relative to other property businesses the FHL rules have provided significant tax breaks. Recent moves to abolish these rules were withdrawn when the coalition came to power pending a further review and consultation. The rules have now been reviewed and the proposed changes are outlined in the Finance Bill 2011.
The key changes are:

• The withdrawal of the right to set off losses from FHL against other income – ‘sideways’ loss relief. This change is effective for income for the tax year commencing 6th April 2011 and for corporation tax for accounting periods beginning on or after 1st April 2011.
• The extension [increase] of the number of days the property must be available to let and actually let in order to qualify as holiday accommodation. This change is effective for income tax for the tax year commencing 6th April 2012 and for corporation tax for accounting periods beginning on or after 1st April 2012.

The amended rules also apply to FHL properties outside the UK but within the European Economic Community.

Despite the withdrawal of ‘sideways’ loss relief the amended rules continue to provide significant tax breaks, including Entrepreneurs Relief which reduces the rate of Capital Gains Tax to 10% on lifetime gains of up to a limit £5m.

The new rules are not yet law and may change but if you have an FHL business we recommend that you discuss the proposed changes with a professional advisor; in particular whether you will still qualify as holiday accommodation. This will give you more time to plan and consider your options.

Len Bell, Head of the Northern Leisure Team at Montpelier Chartered Accountants, a specialist adviser to the holiday and caravan parks sector mailto: lbell@montpeliergroup.com.