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Next chapter in the Furnished Holiday Lettings saga

The previous Government had announced plans to scrap the beneficial tax treatment of Furnished Holiday Lettings following the European Union statement that it was discriminatory against holiday lets in the EEA as it favoured UK properties only.

Initially, to be compliant, the rules allowing holiday lets (which required to satisfy certain conditions) to be taxed effectively as a trade were extended to properties held in the EEA. However, this cannot continue indefinitely under current legislation as the cost to the Exchequer of an EEA wide treatment is too high.

Legislation removing the beneficial treatment for all furnished holiday lets from 6 April 2010 was meant to be enacted before Parliament dissolved for the General Election but this fell by the wayside.

The Government has now announced that the beneficial rules will continue during 2010/11 for all qualifying EEA properties and they will consult over the summer about plans to change the rules from 6 April 2011.

There are transitional rules for 2009/10 and now 2010/11 to cover loss relief, capital allowances and capital gains, as these are the areas where the change from an investment business to a “trading” business will have the most effect.

The proposed changes are that the rules will apply equally to properties in the EEA but that the number of qualifying days a property has to be available for let, and the number of days actually let are both increased. In addition, the way loss relief is to be given will be changed. The consultation document will give further detail when issued, but it is likely that the current generous set off against other total income will be restricted in some way.

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