Tax change for UK holiday lets

Published 26th Mar 2010

There are only a few days left until new laws are introduced preventing furnished holiday lets receiving tax relief in the UK - so just what does this mean for those that own them?..

April 6th 2010 is D-day for all those who own furnished holiday lets. The rule that governs the way these properties are taxed is due to be repealed on that date, which could be bad news for those that own them and those that want to stay in them.

The current advantageous tax treatments available to owners of such properties will no longer be available. These include certain capital gains tax (CGT) reliefs, capital allowances and offsetting any losses.

The law change will alter the status of furnished holiday lets from trading businesses to property investment businesses similar to buy-to-let properties, and has come about because previous legislation was contrary to EU stipulations on consistent taxation for citizens of member states regardless of where their business is located.

Until the current rules are repealed, they are being extended to owners of furnished holiday accommodation in the EEA who are also liable to pay UK tax. Such properties will need to meet the same criteria as furnished holiday letting accommodation in the UK to qualify.

Country Life reported, "The loss of tax relief will particularly dissuade new businesses, who will no longer be able to offset their capital expenditure against other income, meaning it will take longer for the let to become profitable," explains Kurt Janson, policy director of the Tourism Alliance (TA), which has been at the forefront of the campaign to see the legislation altered.

However, hope has been offered by the Conservatives, who have pledged to repeal the decision.

Short term holiday accommodation will be treated in the same way as residential lettings for tax purposes.

What does this mean?

You can deduct ‘allowable expenses' from your rental income to get a net profit. These include:

Letting agent fees (if applicable)

Council tax

Maintenance and repair costs

Utility bills

Interest on mortgage payments

Buildings and contents insurance

Additional running costs such as cleaning and gardening services

Advertising fees

You can also deduct a further ‘wear and tear' allowance, which is based on a percentage of the rent, or a ‘renewals' allowance, which is the cost of replacing an old item with a new one (minus any sum gained if the old item was sold).

The resultant sum is your taxable profit

Then what?

The taxable profit from rental income is added to your overall taxable income.

You can offset any losses made against any profit made from letting another property, but not against your overall income (as you can under the current FHL rules).

You can also carry forward any losses to offset against lettings profits in future years

Source: ' TMC '

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