The EU seems to have caused a problem for the Chancellor. As a direct result of EU rulings the UK has been compelled to extend the various tax advantages of ‘Furnished Holiday Lettings’ status to properties located within the European Economic Area (EEA) – as long as they meet the required qualifying criteria.
Clearly the UK Treasury were very unhappy with this, and in his April 2009 budget the Chancellor announced that the entire Furnished Holiday Lettings tax legislation is to be repealed and withdrawn with effect from 6 April 2010.
What difference will this make?
Obviously if you presently rent out accommodation as a qualifying holiday let in the UK it will make a big difference.
From the 6 April 2010 FHL property income will revert to being taxed as non-FHL property income. In a nut shell the downside tax effects after 5 April 2010 are:
- you can no longer set of FHL losses against other income
- you can no longer claim capital allowances for the purchases of furniture and equipment, and
- you will lose significant capital gains tax reliefs including roll-over and entrepreneurs’ relief if you dispose of FHL properties after 5 April 2010.
- you will lose the ‘Business Property Relief’ on FHL property, which means the property value will become chargeable to inheritance tax.
What are the opportunities?
As always change can have positive effects. We have listed a two below:
- if you own a let property in the EEA, that would have qualified as a FHL property under the present rules, it may be possible to back date changes to your tax returns for 2007 and 2008. This would include set off of surplus FHL losses against other income.
- if you have sold a property in the EEA that would have qualified for more favourable capital gains tax treatment, computations can be revised for the years ending 5 April 2007 and 5 April 2008.
If you feel that you may be affected by these changes we should meet and discuss as soon as possible. The most immediate deadline is to apply for a late change to your 2007 self assessment tax return if it needs to be changed; this has to be done by 31 July 2009. (If you have operated your FHL trade through a company, amendments to tax computations for accounting periods ending after 31 December 2006 have to be submitted by the same date, 31 July 2009.)