Since I first raised this issue in April of last year (see UK Budget Bombshell for Second Home Owners) I have had occasion to return to the subject several times.

To recap, as part of the 2009 Budget, measures were slipped into the small print of the budget by the then Government to withdraw the furnished holiday lettings rules which apply to individuals, partnerships, trustees and companies who have income or capital gains from the commercial letting of furnished holiday accommodation.

The rules allow profits arising from the letting of furnished holiday accommodation to be treated as profits of a “trade” rather than of a property lettings business.  Amongst other things, this enables owners to set off losses realised from the letting of the accommodation against other income and to benefit from the capital gains tax reliefs that apply to business assets (including entrepreneurs’ relief).

These changes were ostensibly made because it was held that as the reliefs were only available in respect of property situated in the UK this was against European Union law. As I pointed out in my initial article and expanded on in my later article Act Now to Reclaim Tax on Holiday Homes in the UK or Europe the change also made it possible for UK owners of holiday property situated elsewhere in Europe to make retrospective claims against their income tax or capital gains tax liabilities.

In the 2009 Budget the then Chancellor, Alistair Darling, announced that the current furnished holiday letting rules were due to be withdrawn for income tax and capital gains tax purposes from 6 April 2010 and for corporation tax purposes from 1 April 2010.
However today, in his Post Election Budget, in a measure that will please the tourist industry, the Chancellor has confirmed that the existing rules relating to furnished holiday lettings will remain for the tax year 2010/2011.  Moreover, the current practice of HMRC to apply the furnished holiday lettings to qualifying properties situated elsewhere in the European Economic Area (EEA) will continue to apply for the tax year 2010/2011.

Mr Osborne further announced that the Government would publish a public consultation over the summer with details of planned changes to the tax treatment of furnished holiday lettings, which will apply from April 2011.  This consultation will specifically focus on:

  • Ensuring that the furnished holiday lettings rules apply equally to properties in the EEA;
  • Increasing the number of days that qualifying properties have to be available for letting to the public (currently only 140 days in the tax year) and the actual number of days the property must be let (currently only 70 days); and
  • Changing the way in which loss relief is available to furnished holiday lettings.

This is a most welcome and somewhat unexpected announcement particularly given the attitude of many Liberal Democrat MPs in the Coalition Government and on the backbenches. It is perhaps an example of a policy where the voices of many Conservative MPs, particularly those representing rural areas where the tourism industry is important, has been listened too.

When the results of the consultation are announced I shall post another article here. In the meantime, do please browse the earlier articles.

See Also

Category: Property Tax

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