Sneaky tax grab to hit holiday lets

Published 06th May 2009

Owners of holiday homes in Britain will lose a great tax perk next year because of sneaky changes buried in the small print of last month's Budget. From April 6, 2010, they will no longer be able to offset losses from second homes they rent out against their other tax bills.

Currently, anyone with a furnished holiday home which they let out for at least part of the time can write off their mortgage interest and other costs of running and maintaining it as a business loss. This has been the case since 1984.

Not only does this mean they usually pay no tax if the rental income does not cover their costs, but they can also use their losses to reduce the tax on the rest of their income.

To qualify for this tax break, the holiday home must be available to rent for at least 140 days a year and must actually be let for at least 70 days. And it cannot be let to the same person for more than 31 consecutive days.

The rules should also affect those who own static caravans or park homes and let them out for part of the year.

The changes mean second homeowners will lose the right to write off losses against other tax bills, such as income tax from their main job - though they will still be able to write off costs against their rental income.

Removing this benefit will make buying a second home less attractive.

Nick Hopkins, director of Property Portfolio Rescue, says: 'This will have a huge knock-on effect on the tourist industry at a time when it needs all the support it can get.

'Most people use their holiday home a third of the time and rent it out for the rest of the year.

'If this means they can no longer afford to keep them, the extra properties coming onto the market will drive down prices in holiday areas, such as the South Coast, which can least afford it.'

But it's not all bad news. Until now, this perk was not available to those with a holiday home outside Britain. But the Revenue has decided to extend it to those with holiday homes within the EU, until it shuts the door on it in April.

A spokesman for HM Revenue & Customs says:

'We've decided to treat holiday homeowners here and in the EU in the same way, as we were concerned this difference may not have been compliant with European law.' Not only will overseas homeowners be able to offset losses this year, but also for the tax year 2008/09 as they have until January 31 to file their tax return.

Patricia Mock, of accountants Deloitte, says they should also be able to amend their 2007/08 tax return for non-profitable holiday homes to take losses into account.

Those who don't do a selfassessment tax return can contact their local tax office to make a repayment claim.

They may even be able to go back further. The Budget allows for late amendments to tax paid in 2006/07.

'However, it's not clear until we see the legislation whether this applies to setting losses from holiday lets against their tax bills,' says Mrs Mock.

Source: ' Daily Mail '

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