No doubt for most, the events since March 2020 have ravaged your income streams. You’ll also appreciate that to qualify to be treated for UK tax purposes as a FHL (UK or EEA-based properties) then you need to meet the 210 day and 105- day tests – and no doubt your carefully maintained diary of “actual days occupied” will also be looking pretty thin. So where does that leave your tax status? And what have you concluded to disclose for the 20/21 self- assessment tax return? In all events and scenarios, you need to maintain and keep excellent business records.
The good news is that for established FHL businesses the tax law has long- provided for a “period of grace” election. If there is a tax year in which you miss the 105- day test, then you could point to the prior one or two tax years of compliance with the occupancy test, and the default in a year (say 20/21) could be overlooked, so preserving FHL status. If you have multiple FHL properties you could also average the number of days across all properties, which could help. But, of course, the period of grace test is a backward-looking test – if you have no track record, then what do you do?
The bad news is that for now HMRC seem to be wedded to a rigid interpretation for new FHL. If you were not established as an FHL before 6 April 2020 then their generosity is in short supply, meaning you may not be able to establish an FHL tax status: and that is really unhelpful, specially if you have just spent lots establishing and renovating your new FHL property. What is essential is that you are able to demonstrate that the property was indeed available (say advertised) for the 210 days in 20/21 (even if COVID meant the property could not be used). On the 105-day test, so far HMRC seem reluctant to relax this requirement although they have mentioned that any revised guidance on these criteria will be published in due course.
In summary, all FHL claimants should keep very detailed day-counting (availability and occupied) records. For established FHL businesses, collate the facts that support your 210- day availability and consider the elections available to make-good any 105-day shortfall in 2020/2021.
For new FHL businesses in 20/21, and if the case, ensure the 210- day availability is beyond doubt. Then hope that a relaxation of the 105-day test may be forthcoming – note this is not an entirely forlorn hope. HMRC have already (in fact long-ago) announced that for expats, exceptional circumstances can include COVID-enforced disruption of day counting. We can only hope that a similar leniency might be made available to new FHL providers. Indeed, the rules for the newly self-employed to qualify for some COVID support were belatedly extended – couldn’t the same modest generosity apply to new FHL?
The next step
For more information, please contact David Jones or your usual UHY adviser.