Back in April of this year Alistair Darling slipped a shock announcement in the small print of his Budget statement. I reported these in a previous post UK Budget Bombshell for Second Home Owners. You should read the earlier post for full details but basically Mr Darling announced that with effect from April 2010, the tax treatment of rental income derived from holiday lets in the UK would change. No longer will owners be allowed to offset their costs against the rental income and no longer will they be able to claim relief for Capital Gains Tax when they come to sell a property.

Mr Darling’s excuse was that the EU believed it gave preferential tax treatment to UK holiday home owners as the same relief was not available for holiday homes situated in Europe and the change was, according to the Chancellor, “to bring the UK into line with EU law”.

I pointed out that in my view this change offered owners of overseas properties the opportunity to claim the relief previously denied to them not just for the current tax year but also for previous years. The relief doesn’t just cover income tax but also Capital Gains Tax.

Now is the Time to Act

It seems that Her Majesty’s Revenue & Customs (HMRC) agreed with my view as thet have just announced that the possibility of repayments is a real one and that they will accept late amendments to 2006-7 tax returns up to July 31st this year and late claims by letter as far back as 2003-4. Anyone who owns a property anywhere in the European Economic Area (EEA) should now be considering, with their tax advisors, whether there is an opportunity for them to reclaim tax paid.

However, not all furnished holiday lets in Europe qualify for this special tax treatment so it is important to check your property meets the necessary criteria before making a claim. To be eligible the property must be furnished accommodation and let on a commercial basis with the view to making a profit.  It must be available for letting as holiday accommodation for at least 140 days during a 12-month period and lets must be shorter than 31 days. 

Furnished holiday lettings are treated more favourably than buy-to-let as owners can offset a wide range of expenses against the rental income and any losses can be offset against other income.  From April of next year this advantage will disappear and holiday rentals will be treated like buy-to-let. 

The concessions that will be lost affect more than income tax.  In the past, Capital Gains Tax on sale of a letting business was assessed at the rate charged to trading enterprises of 10% as opposed to 18% on buy to let.

In addition gains could be rolled into the purchase of another letting property.  On the income tax front, losses could be offset against other income from a separate employment and there were capital allowances for improvements.  Letting income qualified for relief on pension contributions and as a business there were Inheritance Tax benefits as well.

Property owners should contact their accountant or tax advisor or, if they prefer, can get further information from James Green & Co who offer a free 30 minute telephone consultation.

See Also

Category: Property Tax

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