Fixing FHL failure

Commercial letting of furnished holiday accommodation (referred to as a furnished holiday letting or ‘FHL’) attracts some valuable tax benefits. These include the ability to claim full tax relief for interest; to base pension contributions on FHL profits; and to claim capital allowances.

There are Capital Gains Tax (‘CGT’) advantages too: in particular, you can claim Business Asset Disposal Relief (previously Entrepreneurs’ Relief), Rollover Relief or Gift Holdover Relief on a disposal of an FHL property where the other conditions of those reliefs are satisfied.

But whether property counts as FHL for a tax year depends on the meeting of tests for its availability, the actual letting and the pattern of occupation. Broadly, the property:

  1. must be available for commercial letting as holiday accommodation to the public generally for at least 210 days in the year;
  2. must actually be so let for at least 105 days in the year; and
  3. must not be in ‘longer-term occupation’ (as defined) for more than 155 days in the year.

All three tests must be met.

The pandemic has hit many FHL businesses hard: in many cases the result is that the 105-day test will not be met for 2020/21. Although some of the coronavirus support measures may have helped FHL businesses, there is no relaxation of that basic 105-day rule (or either of the other rules) to reflect this year’s extraordinary circumstances. So, many FHL businesses will fail to qualify for the year.

At first blush, this means that an FHL investor who now decides to call it a day and sell up will, as well as losing the Income Tax advantages for 2020/21, also forgo any beneficial CGT treatment on disposal.

But that may not be the end of the story. If the property qualified as an FHL in 2019/20 and fails to qualify for 2020/21 only because of the 105-day rule then, provided there was a ‘genuine intention’ to meet the rule for 2020/21, it is possible to make a ‘period of grace’ election. The effect of this would be to treat the property as FHL for 2020/21 (and for 2021/22 if the ‘genuine intention’ continues to be fulfilled), thus preserving the tax benefits.

Note however that the election cannot be made if:

  • the property has not been let at any time in the year in question (though in practice it appears that HMRC may not always apply that condition strictly); or
  • FHL treatment is denied because the 210-day test or the ‘longer-term occupation’ test is failed.

For more information, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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