Holiday Homes Tax Bombshell

One of the most unexpected changes to emerge on budget day was a change to the tax status of holiday homes that are currently given favourable treatment under the furnished holiday lettings regime, explains Esme Shakeshaft at Moore Stephens office in Newport.

This has been forced on the UK government by the EU. Given a choice between either extending the relief to properties throughout the European Economic Area (EEA), or abolishing the relief completely, the government has decided to abolish it.

From April 2010, the furnished holiday lettings regime comes to an end, with adverse effects for anyone involved. Landlords with properties on which they make a profit will be the least affected. They can expect little change for income tax purposes, except they will not be able to use the income from their holiday lets to support their pension contributions. But the changes will have a real impact on those making losses, as they will no longer be able to offset these losses against any other income, but only against profits arising on other rental properties.

In one clean sweep the Chancellor has devastated the tax reliefs available on the sale of a property. Entrepreneur’s relief and hold-over or roll-over relief will be a thing of the past. There will be no incentive to purchase a property in order to roll-over a gain already made on another qualifying business asset. Landlords will also no longer be able to pay capital gains tax at only 10% on the disposal of the property.

There is some good news for owners of holiday homes elsewhere in the EEA who let their properties but they need to act quickly. Until 5 April 2010, they will be able to claim tax repayments retrospectively. If they are claiming losses, it will be possible to amend tax returns for 2006/07 and 2007/08, but any claims for 2006/07 must be made by 31 July 2009. Claims relating to capital gains tax relief may be made in writing to HMRC, generally at any time up to 5 years and 10 months after the end of the tax year for which relief is being claimed.

Finally, anyone who is thinking of selling their holiday home, serious considerations should be given to exchanging contracts before 5 April 2010 to take advantage of the current capital gains reliefs before they are withdrawn.

For more information contact Moore Stephens, Newport:
Email address: newport@moorestephens.com
www.moorestephens.co.uk