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Owners of furnished holiday rental accommodation have been granted a reprieve from changes due to be introduced in the 2010 Finance Bill. Randall and Payne’s Ian Selwood, based in Cheltenham, explains:
An EU ruling stated that the UK government could not apply holiday let relief only to homes in Britain; it had to apply to homes anywhere in Europe, or none at all. So, in the 2009 Budget, the Treasury announced that, to comply with EU law, it would be extending the treatment of furnished holiday lets to include EU property, but from April 2010 it would repeal these rules, abolishing the tax relief completely.
The longstanding tax rules treat furnished holiday lettings as a trade, allowing income or losses generated to be treated as earned income and benefit from a variety of reliefs not available to general property income and owners to deduct certain losses and capital expenditure from their taxable income. The rules benefit a wide range of property owners from businesses such as hotels with self-catering accommodation, holiday parks, static caravan sites, purpose-built holiday complexes and single holiday home owners.
The relief may be short-lived, however as the measure will be revived in the event of a Labour win at the election. Both opposition parties attacked the measure in the Commons, agreeing with many business associations and ABTA that it could damage the British tourism industry.
ABTA Chief Executive, Mark Tanzer, said: “The repeal of the FHL rules would have had an extremely damaging impact on domestic tourism and many of our Members’ businesses and we welcome the Government’s sensible decision to set aside the proposed repeal for the time being. We will call on the new government in office after 6 May to listen to industry concerns and reform FHLs in a way that both achieves Government objectives as well as supporting domestic tourism.”
But whilst keen to see the measure dropped from the Bill, neither of the opposition parties have made any clear commitment on tax breaks for this area. If the measure doesn't go ahead, the Treasury will have to pay tax relief to everyone with a holiday home within the EU, which is why Labour intend to reintroduce it in the next Finance Bill, immediately after the General Election. For now though, owners of holiday lets in European Union member states have an extra window of opportunity to claim tax relief. The election result will determine how long the window remains open.
What may happen if another party comes to power is that alternative provisions could be introduced which allow genuine holiday letting businesses to continue to qualify for the tax reliefs as a business and withdraw them for those who own a second home, ‘letting it out’ to friends and family to meet the current qualifying conditions tax relief. An alternative would be to focus on non-occupation of properties which are subject to FHL reliefs. This would mean that when relief is claimed, the owner of the property and any connected persons could not occupy it or the reliefs would be lost. Whatever the outcome, it is clearly a period of uncertainty for owners of furnished holiday let properties in respect of how their income and gains will be taxed. It may be tempting to go on a furniture-spending splurge to take advantage of the 100% annual investment allowances for purchases of new furnishings and fittings, or people may be taking action to sell or let their properties long-term in the expectation of the changes taking place, but it is very important to continue to let your property according to the holiday let rules if it is to continue to qualify, so it may be worthwhile reviewing your letting arrangements for 2010/11 and making changes where necessary.
The tax position for furnished holiday lettings business is a complex area requiring professional advice and, while this gives a window of opportunity to owners of qualifying properties, it is essential that any planning relating to the use of losses or other reliefs available is dealt with now.
Randall and Payne are fully qualified to advise you, so call Ian Selwood on 01242 548600. |
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