Tax Attack on Holiday Lets

Included within HM Revenue and Customs Pre-Budget Report was further guidance on the treatment of Furnished Holiday Lets (FHLs).

The change in rules will mean that many owners of FHLs will pay more tax than has previously been the case. With effect from 6 April 2010 it will no longer be possible to claim capital allowances on capital items - for example swimming pools, washing machines etc. In addition it will not be possible to claim losses against other income, and it will no longer be possible to claim a range of reliefs when the property is sold. All of these measures will increase the amount of tax payable.

Property owners will also find it harder to contemplate any "succession planning" as the possibility of claiming gift relief will also be removed. This together with HM Revenue and Customs stance on Business Property Relief for the purposes of Inheritance Tax means that property owners might well feel they are being targeted from all angles!

The changes introduced are discussed in more detail in the attached newsletter.

What owners of such properties might consider is incurring expenditure before 6 April 2010 in order to ensure that expenditure does fall into the capital allowance regime, owners might also consider providing additional services (e.g. regular meals and linen changes) to ensure that the business is seen to be a trade. This would take the business outside of these rules.

If you would like further guidance on any of the above then please don't hesitate to contact me. By Paul Collings

Published: 11.12.2009