The tax advantages on furnished holiday lets were reinstated by the Coalition after the previous Government abolished them in April..
George Osborne the Chancellor of the Exchequer reversed the measure in the June Budget saying he wanted to help small businesses operating in the tourism industry.However, the Treasury has now said it intends to make it much tougher for home owners to qualify for the breaks.The move comes as the Government prioritises reducing the country’s deficit.
Under the proposals, home owners will need to secure more bookings and will no longer be able to offset their mortgage costs against their personal income. This tax break is one of the main financial reasons for investing in a furnished holiday let as it helps to reduce an individual’s overall tax liabilities.
The new proposals aims to bring the rules in line with EU law and make them focused on commercial businesses rather than those run for personal use.It means more than a quarter of the 65,000 home owners offering holiday lets in Britain will no longer be eligible for the tax benefits from 2011-2012, according to a consultation document published by the Treasury.
The consultation said the changes to the rules needed to be “affordable”.
Mike Warburton, of accountants Grant Thornton, said: “The coalition has recognised the importance of this relief to the holiday industry, but clearly want to restrict a loss to the Exchequer in extending the relief to homes throughout the EU as the law requires.”
The taxman requires certain conditions to be met before the furnished holiday lettings rules can be applied.
The Treasury is now proposing that the property must be available to let for a total of 210 days in a 12 month period, up from the current level of 140 days.And it is suggested that the property must be actually let for at least 105 days during that year, up from just 70 days.
The Treasury also wants to restrict losses from furnished holiday lets so that they can only be set against future profits from that same business. It means losses, such as mortgage interest and any repairs, cannot be offset against other investment incomes, such as from shares or savings.
Accountants warned that some home owners may be forced to sell up to reduce their debts and it could deter those who were thinking about getting a holiday let in the future.
Leonie Kerswill, a tax partner at accountants PricewaterhouseCoopers, said: “Home owners who regularly use their property for family trips, and who do not generally leave much time for other members of the public to use will have to rethink, and ensure that they let their homes for three and a half months each year if they want to be eligible for a 10 per cent Capital Gains Tax rate on an eventual sale.”
There are also other tax breaks that apply to furnished holiday lets, such as capital gains tax rollover relief, which is expected to continue.
* Current rules
1.Must be available to the public for 140 days within a 12 month period
2.Must be actually let to the public for 70 days
3.If the holiday let makes a loss due to the rent not covering the mortgage payments, these losses can be offset against personal tax liabilities
* New rules
1.Must be available to the public for 210 days
2.Must be actually let to the public for 105 days
3.If the holiday let makes a loss due to the rent not covering the mortgage payments, these losses cannot be offset against personal tax liabilities.
Source: NFOPP - For more information go to : http://www.telegraph.co.uk