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The Chancellor announced in the June 2010 Emergency Budget that previous plans to abolish the FHL tax regime from April 2010, were to be scrapped.

The Government did, however, concede that the existing rules needed to be amended. A period of consultation followed and draft legislation has now been published in Finance Bill 2011, that will bring about changes to the regime from April 2011.

The principle behind the reforms is to ensure the regime applies equally to properties in the European Economic Area (EEA), thus making the rules fully compliant with European Law, although further amendments have also been considered during the consultation.

As anticipated, the availability of tax losses arising from FHL businesses (specifically the ability to offset losses against general income) will be restricted. From April 2011, losses from FHL lettings will only be available to be set off against the same UK or EEA FHL business.

It has also been confirmed that as previously announced, the number of days that qualifying properties have to be available for and actually let are set to be increased and this will make it harder for many businesses to qualify under these rules.

The minimum period over which a qualifying property must be available for letting to the public in the relevant period will increase from 140 days to 210 days in a year. The minimum period over which a qualifying property is actually let to the public in the relevant period will be increased from 70 days to 105 days in a year. The good news is that contrary to the previous proposals, however, these measures will not take effect until 6 April 2012.

In addition, as a result of the consultation, a new provision will be introduced that will allow businesses to elect to treat a property as continuing to qualify where otherwise it would fail to meet the 105 day ‘actually let’ requirement. This ‘period of grace’ will be available for up to a maximum of two years after at least one full qualifying year, provided there was a genuine attempt to let the property during the grace period.

If you require further clarification please contact Haxton, Chartered Accountants for West London.

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