Change, confusion and U-turns characterise the tax treatment of furnished holiday lettings since April 2009. Prior to that, individuals who let property in the UK as furnished holiday accommodation could, provided certain criteria were met, enjoy significant tax benefits in respect of their income and capital gains. Prime among those was the ability to set any losses on the holiday accommodation against all income of the same or earlier years and the availability of Capital Gains Tax Entrepreneurs' Relief on the disposal of the property.
In the April 2009 Budget it was announced that the treatment should have been available to all UK tax payers who rent out furnished holiday accommodation in the European Economic Area, not just the UK. This “reinterpretation” of the rules was supposed to have been in place since the rules themselves were originally introduced. At the same time, it was also announced that the advantageous tax regime for furnished holiday lettings themselves would be abolished from 6 April 2010.
Fast forward to the emergency Budget on 22 June 2010 and it is all change again for furnished holiday lettings. Chancellor Osborne announced that the tax rules for furnished holiday lettings would in fact not be abolished from 6 April 2010 and that there would be public consultation over the Summer about plans to change the tax treatment of them from April 2011. Details of that consultation have now been published. The proposals are that from April 2011 holiday accommodation in both the UK and the European Economic Area would continue to qualify for advantageous tax treatment. There will, however, be tightening of the rules which govern how many days a property must be available as holiday accommodation in order to qualify. It is also proposed that losses from holiday lets will only be available to set against income from the same holiday let. The good news is that there are no proposals whatsoever to remove the eligibility to the 10% Entrepreneurs' relief for such property.
If you let property as holiday accommodation anywhere in the UK or the European Economic Area and would like more advice as to the special rules and the impact of the proposed changes we can supply detailed information and advise you on your best course of action to maximise your tax benefits.