Furnished Holiday Lettings - Don’t miss opportunity for tax repayment - Mazars - United Kingdom
Furnished Holiday Lettings - Don’t miss opportunity for tax repayment
Furnished holidays lettings (‘FHL’) attract special tax treatment - but this has always previously been limited to UK properties. However, in the Budget it was announced that the tax advantageous treatment is being retrospectively extended to cover properties situated within the European Economic Area (EU plus Norway, Iceland and Liechtenstein).
In order for a holiday property to qualify as FHL, a number of conditions must be met. The property must be available for letting for at least 140 days per annum and must be actually let on a commercial basis for 70 days. In addition, the property must not be let for more than 31 days in a period of seven months – so only short holiday lets will qualify.
Under the FHL rules, the letting business is treated like a trade. For example, capital allowances may be claimed for equipping the property for letting and running and refurbishment costs are relievable. A tax loss on the lettings may be offset against total income, provided the conditions have been met – thus generating a repayment of tax paid, say on salary. In addition, sales of FHL may qualify for reduced rates of capital gains tax due to entrepreneurs’ relief.
As this change has retrospective effect, HM Revenue & Customs has extended the normal deadline to amend personal tax returns for the tax year 2006/7 to 31 July 2009. Therefore, if you have let a property in the EEA out on short term holiday lets, it will be worth checking to see if you could benefit from a tax repayment. However, time is running out to put a claim together.
The bad news is, unfortunately, that FHL treatment will be abolished for UK and EEA properties alike from 6 April 2010. This in itself gives rise to the need to consider issues. For example, if a disposal of an FHL property is already being contemplated, doing so before 6 April 2010 (for individuals) allows entrepreneurs’ relief to be claimed, if this is available, thus reducing the effective rate of capital gains tax to 10% (before the annual exemption). Other issues include accelerating refurbishment projects and considering the long term holding strategy for holiday properties.
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Rosemary Blundell
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