Latest article from Burton Sweet’s Rachel Finch

Burton SweetChanges to the tax system in April next year will affect owners of Furnished Holiday Let properties in the UK and the European Economic Area.

The new rules, which will come into effect on 6 April 2012, will make it harder to qualify for the tax advantages furnished holiday lettings currently enjoy.

There have been two significant changes announced so far:

1. If you make a loss in the year on a qualifying property it can be offset against your other income, potentially giving rise to a tax refund. New legislation will mean that losses may only be used against profits made by other furnished holiday let properties.

This changes means that if only have 1 qualifying property, or if you make a bigger overall loss than you make a profit then the balance of the loss is just carried forward, you do not get relief against your other Income Tax.

2. A furnished holiday let property is any property in the UK or elsewhere in the European Economic Area (EEA) which is commercially let and meets certain letting criteria, which are also set to change.

From 6 April, the number days in a tax year for which the property must be available for letting to third parties to qualify as a furnished holiday let will increase from 140 days to 210 days. Secondly, the number of days for which the property must actually be let will increase from 70 days to 105 days.

These changes mean that properties in areas with short seasons which had previously qualified for furnished holiday let treatment may no longer qualify for beneficial tax treatment.

At the moment there is no word on whether the favourable Capital Gains Tax treatment of Furnished Holiday Lettings will also change in April, these include:

1. Provided that you have held the property for over 12 months, that you own over 5% of it, and that it meets the Furnished Holiday Letting criteria, then the property may qualify for Capital Gains Tax Entrepreneur’s Relief. This means that if the property is sold the rate of Capital Gains Tax payable could be reduced from 28% down to just 10%.

2. Currently, Furnished Holiday Lets qualify for certain Capital Gains Tax Reliefs, such as ‘Business Asset Roll-Over Relief’, this means that if you sale a qualifying property and reinvest the sale proceeds within 3 years in certain other business assets, you may be able to defer payment of Capital Gains Tax until you dispose of those new assets.

Further details of the changes are expected in the March 2012 Budget.

If you have a furnished holiday let property and are unsure how the changes may affect you, please contact Rachel Finch, Tax Advisory Partner at Burton Sweet, on 01452 305651 or