Tax change for holiday lets
Thousands of UK holiday-home owners with places in Europe stand to lose a range of tax breaks under changes announced in last week's Budget - but, in the short-term, they have been given the chance to apply retrospectively for a tax rebate previously reserved only for owners of UK-based holiday lets...
In a move that will affect around 100,000 people who let out their second homes for part of the year, the tax break, which was originally introduced in the 1980's as a way of encouraging British tourism, could see them receiving a windfall of up to five years' worth of tax.
But, as of April 6th 2010, holiday properties will no longer be treated as business assets, meaning that landlords will no longer be able to write off trading losses from second homes against their tax bill.
This could result in additional tax bills of £4,000 a year. Capital allowances and capital gains benefits will also be scrapped.
Those owning homes within the EU but outside the UK, will get the tax benefits currently enjoyed by owners of UK holiday homes until April 2010. But, come that month, these will also be scrapped.
Why is the tax break being withdrawn next year?
Whilst the tax break has been extended to those owning holiday homes inside the EU but outside the UK until next April because the EU feared it was unlawful to have the current discrepancy, it will then be withdrawn.
This is because HM Revenue & Customs had to choose between extending the tax break to all furnished holiday let owners at home and abroad - which could cost the Government £15 million, or abolishing it completely.
They chose the latter, which could mean that many holiday home owners will sell their properties rather than pay out the extra cash. This could be a bad sign for UK tourism, which is already struggling in the midst of the downturn.
Are you eligible for the windfall?
In order to be eligible for the current tax back allowance, properties must be furnished, being run as a commercial business and available for let for 140 days each year.
Eligible owners have until July 31st this year to apply to amend their tax returns for a rebate going back to the tax year 2006-07.
For claims going back to 2003-04, owners can write a letter to the tax office claiming that there has been an error or mistake on previous returns. This may or may not be accepted, depending on individual circumstances.
Picture by EIPablo