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Furnished Holiday lettings (FHL)

Currently, a furnished holiday letting can be deemed to be a trade and as such enjoys more flexible loss relief, capital allowances, and certain capital gains reliefs. For Income tax and Capital Gains tax purposes these rules cease from 6 April 2010 and for Corporation tax purposes the rules cease from 1 April 2010 (“the relevant date”).

Any FHL losses incurred before the relevant date which have not been relieved at that date will be treated as losses carried forward by a property business available for set off against its future profits. Various CGT reliefs will also no longer be available form that date, for example, entrepreneurs relief and business asset rollover relief.

Capital allowances will not be available for expenditure incurred on or after the relevant date. They will continue to be available on qualifying expenditure incurred before the relevant date if the business is run on a commercial basis.

Anyone affected by this change should review their property portfolio well before the relevant date to ensure that at the very least the use of losses will be maximised, possibly by advancing intended allowable expenditure.

Inheritance tax changes

The IHT threshold was to increase automatically to £350,000 under legislation already in place but today’s announcement has frozen the threshold at £325,000 for 2010/11.

Measures have also been announced to block two schemes which purported to avoid lifetime IHT charges on placing property into trust. The schemes involve purchasing a life interest or some kind of future interest. As always with anti avoidance legislation, it is likely that the scope will be wider than needed and affect more taxpayers than those who have actually used the schemes.

Adult Placement Carers

Two measures have been announced to “qualifying” Carers. Firstly, Carers under certain schemes will receive a tax free allowance with regard to the receipts they obtain for caring within their own homes. If their receipts are under the allowance (proposed to be £10,000) then it will be tax free. If in excess of this, there is an option to choose a simplified method to calculate taxable profits.

Legislation will also be introduced to ensure that there will be no restriction on the availability of Private Residence Relief for Capital Gains tax purposes on the sale of a qualifying Carer’s home where part of the house is set aside exclusively for the use of the adult in care.

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