|
For information of users:
This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
|
Tax Breaks on furnished holiday lettings set to disappear
You may need to act now!
Since 1984, furnished holiday lettings have been given special tax treatment over long term lets, which allows them to be treated as a trade for most tax purposes irrespective of how they are actually run. To qualify, they must be:
- Let on a short term basis during the season
- Let for at least 70 days
- Available for let for at least 140 days
- Let on a commercial basis
- Situated in the UK (but see recent developments outlined below)
This opens up the ability to:
- Claim losses against other income
- Benefit from entrepreneur's relief (10% capital gains tax on sale)
- Roll-over capital gains
- Claim capital gains tax gift relief
- Claim capital allowances on equipment & furnishings
- Treat the income as relevant earnings for pension contribution purposes
The rules were introduced after much lobbying from the tourism industry because it was becoming increasingly contentious whether certain lettings were really operating in a similar way to a hotel. This removed any lingering doubts for businesses on the ‘trading’ borderline and was of course great news for those who were more passively involved with their property.
However, the Government announced in the 2009 Budget that this preferential treatment will be withdrawn from 6th April 2010, so the tax breaks going forward will depend on whether the lettings amount to a trade under general principles. In other words, we will be back to the position that existed prior to 1984.
The reason for the change has at least been partly due to the fact that the Government has acknowledged the unfairness of the current rules which restrict the tax breaks to UK properties and that this might not be compliant with European law. Rather than allowing properties both in the UK & European Economic Area (EEA) to qualify in the future, it has opted to abolish to rules entirely.
However, furnished holiday lettings in the EEA will now qualify in the meantime.
Am I affected?
If taking bookings, cleaning and maintaining the property between lettings are the only services provided, the answer is yes.
From 6th April 2010, you will no longer be able to rely on the special rules deeming your business a trade, so your activities will have to amount to a trade in their own right. In our experience, you will need to ensure that a significant amount of extra services are provided by you or your agent in order to retain the tax benefits in the future. We can advise you what action you need to take. This may also secure you 100% inheritance tax relief!
If you are considering selling your holiday let in the foreseeable future please read on.
If you do not sell your property by 5th April 2010, you may lose out on the capital gains tax benefits. This could cost you up to an extra 80% in tax! However there are ways around this if you are prepared to take our advice.
If you have already sold a furnished holiday let in the EEA, you may have paid too much capital gains tax. If the business has made losses you may have paid too much income tax as well. The Taxman will allow you to adjust your tax returns going back to 6th April 2006. If this relates to the year ended 5th April 2007, you must do this by 31st July 2009. If you think this applies to you, please contact us immediately.
Additionally, there is now an opportunity to roll-over any capital gains made on business assets from 2003/04 onwards, into an EEA holiday let acquired in the period starting one year before and three years after the sale of the business asset. This could result in a significant tax rebate.
Spanish properties
We would be interested in hearing from individuals who have sold a Spanish property in 2005 or 2006 who paid 35% in Spanish capital gains tax. The European Court of Justice has held that non-residents were overcharged, as Spain only levied 15% on its own residents. This discrimination has ceased to exist from 2007, as everyone now pays 18%.
However, there is a limited time to reclaim a tax rebate from the Spanish authorities, so please contact us if you think this applies to you.
If you would like to discuss your particular circumstances with us, please contact:
Daren Peacock on 01270 623731.
|
