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Government Consultation on Furnished Holiday Lets
The proposals in this consultation document have been confirmed and will take effect from April 2011 with the exception of the minimum weeks proposal which will start from 2012. Qualifying properties will retain their status for 3 years regardless of the weeks let but otherwise the rules will be as described here.
The much anticipated consultation document on furnished holiday lets has been released. There are both good and bad things in it for our clients and you can download the full document here.
On The Good Side
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The Government has recognised the importance of furnished holiday lets
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The current rules will apply for the 2010/11 tax year
- Favourable tax treatment will definitely continue
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Entrepreneurs' relief will continue so that capital gains are taxed at 10% rather than 28%
Neutral Proposals
- Minimum period property available to let increased from 140 to 210 days
- Minimum number of days actually let increased from 70 days to 105 days
We actually welcome this tightening of the rules- if you are letting less than 13 weeks a year then you don't really have a holiday business and it is probably tax payout to just this sort of hobby property that is prompting the government to restrict the rules for those of us running genuine businesses.
On The Bad Side
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It is proposed that losses generated by furnished holiday lets will not be alowed offset against other income, but only be allowed against future profits.
1/7/10 The Government have left the Furnished Holiday Let rules in place for this financial year and issued a discussion document with proposed changes to tighten up the rules. Most of the proposals will not affect owners who genuinely run a full time holiday let apart from a proposed change in rules on offsetting losses. Call us for detailed information and an update on the latest situation.
Great News- Tax Changes Suspended
The Government has not been able to get all party agreement on the tax changes and so they have been cancelled until after the election. Labour will revisit them if elected but both the Conservatives and Lib Dems have indicated that they will scrap or substantially change the proposals. We await the result with interest!
Tax Changes for Furnished Holiday Lets in Budget 09
Although not mentioned in the speech, the 2009 budget brings significant tax changes for holiday home owners. Provided they meet certain criteria regarding weeks available and actually let, UK holiday homes have been treated as a business and qualified for a number of significant tax benefits.
The Government has been advised that it is illegal to discriminate between properties in the European Economic Area and so will remove these benefits from UK holiday homes from April 2010.
What Are The Changes From April 2010?
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Capital Gains Tax |
Entrepreneurs Relief will no longer be available effectively raising tax from 10% to 18% on profits when the property is sold (It's slightly more complex- call for exact details). Rollover relief and holdover relief will also be lost |
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Allocation of Losses |
Losses will only be allocated against future rental profits not against other income. This is very significant as there is currently immediate tax relief on expenses & refurbishments. |
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Capital Allowances |
Capital items such as furniture will be treated less favourably and crucially the potential to claim plant & machinery allowances on purchase will be lost |
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Pensionable income |
Income will no longer be considered relevant earnings for pension purposes- Not relevant to the vast majority of people |
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Inheritance Tax |
Business Relief for IHT is not specifically mentioned, but given that this department has tended to apply more stringent criteria for qualification it seems inevitable that this potentially enormous benefit will be lost |
What Should I Do If I Own A Holiday Home?
First of all Dont Panic! Most people didn't buy their holiday home for tax purposes and many owners I speak to are not even aware of the tax position of their property. The general concensus is that we have seen the worst of the house price falls and there's no doubt that well located cottages have not suffered as badly as the general market. Rental yields are now better than most investments and the tax treatment will be no worse so just accept it was good whilst it lasted!
The changes don't apply until April 2010 so now is the time to plan and use this tax year to give The Chancellor a goodbye present by taking every possible advantage of the current rules
Top Tips To Make The Most of This Year
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Get on with all those things you were planning to do. Kitchens, bathrooms, new roof, carpets, curtains- you'll get a refund of 20% or 40% according to your tax rate on capital items up to £50k and all maintenance & renewals.
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Make sure you've claimed all your capital allowances. Progressive accountants have been successfully applying Plant & machinery allowances to the purchase of holiday cottages run as a business. If you didn't get a cheque from the revenue for 2-4% of the purchase price then you probably haven't taken advantage.
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Maximise allowable borrowing. You're entitled to tax relief on a mortgage up to the full original purchase value of the property. If you have a mortgage on your home as well as your holiday cottage you should maximise the borrowing on the cottage
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Record your mileage- I'm sure you travel to your holiday cottage business in order to carry out maintenance. Use of own car is allowed at 40p per mile.
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