HM Treasury has just announced a consultation over the tax treatment of Furnished holiday lettings. Following the consultation the final changes will be announced at the next budget and operate from April 2011. The main proposals are:
- Increasing the minimum period a property is available for letting from 140 to 210 days
- Increasing the minimum period over which a property is actually let to the public from 70 to 105 days
- Where a business qualifies as a furnished holiday lettings business under the new rules, the existing rules for Capital Gains Tax reliefs will still apply. These include business asset roll-over relief, Entrepreneurs’ relief and relief for gift of business assets.
- Changing the loss relief rules so they are only available to set against future profits from that UK furnished holiday lettings business.
- Only allowing losses from a European qualifying furnished holiday lettings business for setting against future profits from that European qualifying furnished holiday lettings business.
A European holiday letting business will cover all the countries in the European Economic Area. The changes proposed would require the UK business to be taxed separately from the European properties.
The significant change proposed is only allowing the losses of the furnished holiday letting business to be set off against future profits of the same business. The existing rules allow losses to be set against other taxable income and can create tax repayments. In the tax year 2008/09 there were 20,000 taxpayers who set furnished holiday letting losses against their other income.
New rules for claiming tax relief on capital expenditure are proposed. Tax allowances on qualifying capital expenditure are referred to as “Capital allowances”. The rules proposed would create a new additional “residential property pool”. This would likely lead to less flexibility and a longer period to recover tax allowances.
The last government planned to scrap furnished holiday letting tax breaks, but they survived the election and the last budget.
Any taxpayers with UK furnished holiday accommodation that no longer qualifies under the new criteria proposed would continue to calculate their profits in line with the property income rules and would still be able to claim business expenses, such as mortgage interest, rates, utilities and employees’ wages, as a deduction.
The proposals are estimated to impact on 65,000 furnished holiday home owners plus another 1,000 companies and business partnerships.
For further information on any of the above contact Andrew Ritchie, Campbell Dallas LLP on 01738 441888 or firstname.lastname@example.org.