Tax relief for holiday home losses boosted then busted
As we’ve come to expect from recent budgets the Devil is in the detail. One such detail omitted from the Chancellor’s Budget speech is the demise of the beneficial tax rules for holiday homes. But there’s a parting gift for some; what is it?
A brief history lesson
For many years the Taxman has treated the renting-out of holiday homes as a business and not an investment. This means, that among other advantages (see The next step), any losses can be used to reduce tax payable on your other income, though overseas property didn’t benefit from these rules. However, in a surprise Budget announcement the Chancellor now says this tax-break will be withdrawn from April 6 2010. But he’s left the door ajar for claims until then. What’s more, he’s thrown open a window of opportunity for some people.
Win some, lose some
The special tax treatment of UK holiday rental businesses will end on April 5 2010. But with limited retrospective effect (see below) foreign holiday homes within the European Economic Area (EEA) will now qualify for the same tax treatment as those located in the UK. Does your property qualify?
What are holiday lettings?
To qualify for the special tax treatment a property must meet certain criteria. The main requirements are that:
• it’s available for rent at least 140 days each tax year
• it must be let as holiday accommodation for at least 70 days during the tax year
• a letting exceeding 31 days to the same person isn’t treated as a holiday let, and
• when it’s not let for holidays it mustn’t be rented out for any other reason for more than 155 days per year.
Door ajar for maximising tax relief
Does your holiday letting income hover around the break-even point or make a loss? If so, then to take advantage of the tax-break you should carry out those maintenance jobs you’ve been putting off. Or maybe even accelerate a few.
Tip. After April 5 2010 if your holiday letting business shows a loss, you won’t be able to use it to claim a refund of tax you’ve paid on other income. So carry out repairs etc. before then to maximise tax relief.
Trap. Don’t confuse repair costs with those for improvements. They count as capital expenditure and aren’t deductible for income tax. But they can be allowed against Capital Gains Tax when you sell the property.
Window open for EEA property
The Taxman has had to concede that UK law isn’t compliant with European law as far as holiday letting businesses are concerned. As a result, the Chancellor was forced to announce that the beneficial treatment for this type of business is extended to all those with holiday homes in the EEA.
Tip 1. Even though strictly the time limit has passed, you can claim for the beneficial treatment to apply to 2006/7, provided you make a claim by July 31 2009 (see The next step).
Tip 2. The beneficial tax treatment for holiday homes applies to individuals, partnerships and companies. So don’t miss out!
For details of other tax advantages for holiday letting (TX 09.16.05A) and for how to make a claim for 2006/7 (TX 09.16.05B), visit http://tax.indicator.co.uk.
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