Taxing time ahead for holiday home owners 
Thames Valley accountants and business advisers James Cowper are warning the owners of furnished holiday lets (including holiday homes let as such) to prepare for major changes this April to the way these properties are taxed. With more to follow in April 2012, taking advice on tax affairs will be crucial to ensure you don’t fall foul of any rule changes.
Stephen Barratt, Private Client Tax Director at James Cowper comments: “The impact of the proposed changes will be severe for many people and those introduced from 6 April 2011 have caused the most concern over affordability. Currently where a furnished holiday let’s expenses exceed its income it is possible to obtain tax relief for this excess against other income, effectively reducing the cost of running the property.”
“However from 6 April 2011, this will no longer be possible as any losses will only be available to carry forward against future profits. In the case of most second homes which are let as furnished holiday lets, this will mean that there is no tax relief. The cost of maintaining those properties will therefore go up significantly making them less affordable. This is potentially serious for many owners whose incomes are already stretched.”
The present minimum requirements for letting the property are that it must be let for 70 days a year and bease with effect from 6April 2012 to 105 and 210 days respectively. The property must be in the UK or another part of the European Economic Area.
“The change in rules from next April is expected to result in 25% of current furnished holiday lets no longer qualifying,” says Stephen.
“Owners also have to consider any liability for Capital Gains Tax (CGT) if they chose to sell the property. Within the time limits set down it is still possible to elect for a second home to be treated as the main residence for CGT purposes for at least part of the period of ownership. Whilst the whole gain might not be CGT-free, it will give at least some measure of relief against a proportion of the gain. The impact on a future sale of your main home will also need to be considered.”
“If the second home is a furnished holiday let, other reliefs are available including entrepreneurs’ relief which can produce a CGT rate of just 10% (top rate normally 28%), and gift relief on making gifts to other members of the family.”
“The rules for each tax relief are quite detailed, so great care must be taken to ensure that the conditions are met.”
Stephen concludes: “This is potentially serious for many owners so I encourage all those who think thathey might be affected to review their affairs as a matter of urgency so that the impact of the changes is understood and factored in.”
Stephen Barratt, Director, James Cowper LLP +44(0)1635 35255 or email sbarratt@jamescowper.co.uk
30.03.11