The UK FHL taxation has been a subject of debate particularly after the UK rules were found to be in breach of EU law. Finance Act 2011 has, therefore, now introduced changes to the rules from April 2011 tightening the qualifying criteria, restricting loss relief and re-confirming the extension of the rules to properties situated in the European Economic Area (EEA).
Whilst the rules apply to properties within the UK and the EEA, the properties situated within EEA are treated as a separate property business for income and corporation tax purposes. This means that FHL businesses located within the UK and the EEA are treated as two separate trades.
The qualifying criteria have been tightened with effect from April 2012 as follows:
| Current | From April 2012 | |
|---|---|---|
| Availability threshold | The property must be available for letting at least for 140 days in tax year | The property must be available for letting at least for 210 days in tax year |
| Occupancy threshold | The property must be actually let for 70 days in a tax year | The property must be actually let for 105 days in a tax year |
Loss relief provisions within the rules have become restrictive in that FHL losses from April 2011 can now only be carried forward and set off against profits from the same trade. Sideways relief against general income, terminal loss relief upon cessation of business and relief against total profits for corporation tax have all been removed. In practice what this means that FHL losses cannot be set off against profits from conventional property income.
