Change in store for holiday lets

Robert Leggett, corporate tax partner at Ensors Chartered Accountants, warns of the loss of valuable reliefs on short-term holiday lettings.

Robert Leggett, corporate tax partner at Ensors Chartered Accountants, warns of the loss of valuable reliefs on short-term holiday lettings.

FROM April 2010, the rules governing furnished holiday lettings will have their taxation treatment changed and their tax reliefs severely curtailed.

A furnished holiday letting is a property that is let for holidaymakers for short periods. HM Revenue & Customs has treated this as a business activity and have generally allowed greater reliefs for Income, Capital Gains and Inheritance taxes.

These reliefs were historically restricted to UK properties only and recently the Government widened the scope of these reliefs to include similar claims for any furnished holiday letting activities within the European Economic Area in order to prevent being in contravention of EU law.

However, this European bonhomie is short-lived as the Government will now be withdrawing the “business” treatment of all furnished holiday lettings with effect from April 6, 2010. It is important to note that at the time of writing, there have been no changes announced to the VAT treatment of furnished holiday lettings

So with the end of the business tax treatment less than a year away, what should you as an individual do if you have a furnished holiday letting?

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If you are planning on keeping the property and continuing to let it, you should explore whether accelerating any expenses into this tax year would generate an Income Tax loss, as this will be the last opportunity for general Income Tax loss relief. If you are considering replacing assets on which you claim Capital Allowances, you should also consider ensuring such expenditure occurs before April 2010 as this treatment will also be coming to an end.

For those with the longer term in mind, if you are planning on selling or gifting the property you should consider the benefits of making any sales or gifts before the end of this tax year to make use of the roll-over and hold-over reliefs in order to shelter any exposure to Capital Gains Tax.

For those considering estate planning, after April 2010 the value of any furnished holiday let properties will almost certainly now be fully chargeable to Inheritance Tax and therefore you should consider how this affects your potential IHT liabilities and whether you need to increase any life cover you have in place.

I would countenance against taking drastic action until the legislation has received Royal Assent, but I would start to consider the possibilities of bringing forward any plans in order to make use of the last few months of the furnished holiday letting business reliefs currently available.

For further information contact Robert Leggett on 01473 220022 or email robert.leggett@ensors.co.uk

This information is given by way of general guidance only, and no action should be taken solely on the basis of the information contained herein. No liability is accepted by the firm for any actions taken without seeking appropriate professional advice.