Two of the properties are available to let all year round, although they did have to cancel bookings earlier in the year there has been a surge in bookings and so we expect these properties to easily exceed the 105 let days on both these properties.
The third is a self-contained cabin on a site that is normally open 1st April to the 31 October. However, due to Co-vid 19 restrictions and problems with getting the site Co-vid secure the site wasn’t opened for lets until 18th July 2020. This has led to a drop in days actually let for 2020/21 season, in part due to bookings being moved to 2021/22 season but also, due to the location of the cabin, some cancellations have not been replaced due to localised lockdowns in the UK. As such, based on the current bookings it seems unlikely the cabin will meet the 105 days let for 2020/21 tax year.
That said I’m aware there are elections we can make to cover a non-qualifying FHL, what are these and are they relevant?
To clarify, for a tax year the property must meet all of the conditions for ‘qualifying holiday accommodation’ for it to be considered a FHL. S325 ITTOIA states these as being;
- The availability condition – during the relevant period, the accommodation is available for commercial letting as holiday accommodation to the public generally for at least 210 days.
- The letting condition – during the relevant period, the accommodation is commercially let as holiday accommodation to members of the public for at least 105 days – adjusted for long-term occupation.
- The pattern of occupation condition – during the relevant period, not more than 155 days fall during periods of longer-term occupation.
The elections you mention are where a property fails to meet the second bullet point, the letting condition. To enable this condition to be met there are two elections that can be made;
- S326 ITTOIA – Under-used holiday accommodation – averaging election
- S326A ITTOIA –326A Under-used holiday accommodation: letting condition not met – generally known as ‘ the grace election’
Each of these elections would need to be made on or before the first anniversary of the normal self-assessment date for the tax year, 31st January 2023 for a 2020/21 tax year.
Averaging Election
S326 ITTOIA can only be used where there are other FHL properties in the year. Instead of taking the actual days the cabin was occupied, you can elect to average the let days with either one, or all, of the other FHL properties your client has. On the basis that the other properties easily exceed the 105 days condition it seems likely using this election the cabin will met the letting condition.
Period of Grace Election
S326A is of assistance where the averaging election does not help or there are no other properties to average with.
This election looks at each FHL in isolation. Where a property previously met the qualifying holiday let conditions for a tax year, but fails to meet the letting condition for the next year or for the next two years and there was a genuine intention to meet this condition you can make an election to assume the condition was met – hence a period of grace.
As the cabin met the condition for 2019/20 and as long as they could prove they did all they could to let the cabin but due to unforeseen circumstances – e.g. co-vid pandemic, the let conditions failed, s326A could be elected for.
Interaction of Averaging & Grace Elections
You can use both the averaging and grace elections – as confirmed by HMRC at PIM4110. However, note that:
- For the Averaging Election, a property which only qualifies under the Period of Grace Election is not a qualifying property (s326A(3)
- For the Period of Grace Election, a property which only qualifies under the Averaging election is a qualifying property (s326A(6))
Availability condition
Due to the applications of these elections the failure of the letting condition should not cause an issue and the cabin is not let on a long term basis so pattern of occupancy condition is met. Two of the three conditions seem to be met but we still need to consider the first bullet point ‘availability condition’.
As the site was not open until 18th July and assuming the site stays open until 31st October and also the first five days of April 2021 the cabin will only be available for 111 days in the 2020/21 tax year and so short of the 210 day mark.
The elections available only relate to the letting conditions, as the legislation stands at present there are no elections for the availability condition. So, at time of writing unless, FHL are available to let all year round, it seems that there is a potential issue for properties qualifying as FHL in the 2020/21 tax year. If this is the case they will default to be let residential dwellings which will have knock on implication for capital allowances and capital gains tax relief’s.
The cabin cannot be ‘qualifying holiday accommodation’ for 2020/21 tax year regardless of a averaging or grace election being made due to cabin only being potentially available to let for 111 days.
It is a predicament that many FHL owners will find themselves in due to events outside of their control such has due to lockdown being imposed. The government has made concessions during co-vid for other pieces of legislation affected by Co-vid such as clarification on exceptional circumstances for the statutory residency test.
The GOV.UK Community Forum hints that HMRC are aware of issues with FHL conditions and may offer an ‘update’ on the situation. But this comment is over three months old and currently the Treasury and HMRC are silent on this point. Therefore unless further relaxations are announced, the legislation has to be read as it stands and many let holiday properties will fail due to the Covid-19 restrictions.
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