Super smashing summer holiday home................. well, maybe

On the subject of summer holidays,  maybe you own a holiday home - the cottage in the Lake District let to holiday makers for the season, with a few weeks spare each year for your family and friends to enjoy a bit of summer sun relaxing with a barbeque on the patio.  

If this is you, then you're probably taking advantage of the attractive tax treatment which is bestowed on Furnished Holiday Lettings (FHL)  when reporting this on your tax return.  Oddly enough, this also means that you are probably one of those people who remembers hearing something about FHL in the recent Budget that made your ears prick up.  And rightly so, as there were major changes proposed to the FHL rules, which may be coming into affect from April 2010.   

The "old" rules broadly state that to qualify as FHL the property must have been: 

  > In the UK and be furnished and,

  > Available to let to the public for at least 140 days a year, and be let for a minimum of 70 days a year and, 

  > Let for periods of longer occupation (i.e. more than 31 consecutive days) for not more than 155 days 
     in the year

Assuming these apply, the main benefits of FHL were: 

 > Losses could be set against any other income

 > FHL properties qualified for the Business Property Relief (BPR) exemption for Inheritance Tax purposes

 > As business assets, sales of FHL properties attracted Entrepreneurs' Relief for capital gains tax purposes   

The changes set out in the 2009 Budget will mean that:

  > Losses will only be available to offset against future FHL income sources

  > The BPR exemption will no longer apply  

  > FHL properties will no longer be classed as business assets and will not attract Entrepreneurs' Relief 

As you know, a lot can happen between a Budget and a Finance Act (when the propsals become law) however careful thought should be given to the impact this may have on your tax affairs going forward.    

Clouds might be on the horizon, and the barbeque may have gone out, but there is a very thin, almost transparent, silver lining to the summer storm.  The old FHL rules restricted relief to UK properties, but before they disappear forever, they will be extended to include any property in the European Economic Area. 

So, instead of thinking about your cottage in the Lakes, you should perhaps be considering your villa in France, as the Revenue are also allowing backdated claims.  Of course, the property would still have had to meet the basic conditions as outlined above - what is it they say, "hindsight is a wonderful thing"........

Please contact Ian Haynes ihaynes@springfords.com if you would like more details on how these proposals could affect you.