News

Proposed tax rules may hit East Anglias holiday homeowners

Owners of holiday homes could be in for a financial setback from April 2011 if proposed tax changes go ahead.  
 
Classified as a trade, furnished holiday lettings (FHL) have benefitted from advantageous tax treatment for many years attracting greater tax relief on recorded losses than buy-to-let properties.
 
Previous proposals to abolish tax relief on FHLs were scrapped by the new Coalition Government for the current financial year.  However, fresh proposals for the next financial year could see a different setback.  
 
“At the moment FHL owners have to let their properties for 70 days a year to qualify for tax relief,” explains Paul Farrow of Norfolk accountancy firm Mapus-Smith & Lemmon LLP .  “But the government proposes increasing this to 105 days.  That’s a massive 50 per cent leap from 10 to 15 weeks. I expect this is not a problem in Devon or Cornwall where the ‘staycation’ market is particularly buoyant but it could have a greater impact in East Anglia.”
 
Proposals also state that FHL properties need to be available for letting for 210 days a year rather than the existing 140 days.  And losses incurred can only be set against income from the same FHL business.  
 
‘This means that if someone has FHLs in both the UK and the EU, the losses in Europe could only be set against profits from the European business,” said Mr Farrow.
 
“Some businesses would cease to be an FHL and even if they met the new criteria, there will be additional work to comply and record financial matters.  And if owners decide to sell then they need to bear in mind entrepreneur tax at 10 per cent.  At least this is more favourable than 28 per cent on the sale of buy-to-let properties.
 
“The changes are not final yet but we recommend that holiday home owners consider what they might do and seek professional advice so see how these proposals might affect their affairs.”

---
« Back to main news page