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Friday 18 September 2009

Owners of overseas holiday homes should take advantage of some potential tax savings.

Changes announced in the 2009 budget give those with overseas holiday lettings businesses the chance to take advantage of benefits already enjoyed by owners of UK-based holiday homes – but only for a limited time.

The new rules allow for certain holiday homes in the European Economic Area (EEA) to be treated as if they fall under the Furnished Holiday Lettings Rules, which previously applied only to UK property, and allow the landlords to treat their holiday homes as a trade rather than an investment, qualifying them for loss relief against general income, Capital Allowances on plant and machinery, and certain Capital Gains Tax reliefs.

Capital Allowances can be used to reduce the taxable profits of the lettings business, or alternatively to create a trading ‘loss’ to be set against the owner’s general income. Where Capital Allowances have not been claimed in the past, it is still possible to claim them in the current tax year, or an earlier year, by amending a tax return within the self-assessment rules. It should also be remembered that ‘plant and machinery’ may include such items as fitted kitchens, plumbing and central heating, as well as loose furniture and equipment.

Andy McQuillan, Tax Partner at Dains said: “The bad news is that the FHL rules are being withdrawn entirely from April 2010, so holiday home owners should act quickly to take advantage of the changes.

To qualify for the special tax treatment, a property must meet certain criteria, namely:
• It is available to rent for at least 140 days each tax year;
• It must be let as holiday accommodation for at least 70 days during the tax year;
• A letting exceeding 31 days to the same person is not treated as a holiday let;
• When it is not let for holidays, it must not be rented out for any other reason for more than 155 days per year.

Holiday home owners whose letting income currently makes a loss, or even breaks even, may want to take advantage of the last year of this tax break by carrying out any outstanding maintenance jobs to maximise tax relief. However, it is important to distinguish between repairs and improvements, as the latter count as capital expenditure and are not deductible for income tax – although they can still be counted against Capital Gains Tax if the property is sold”.

For further information please contact Andy McQuillan Tax Partner on 0845 555 8844 or email tax@dains.com

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