Holiday homes affected by new government tax proposals

You might have read about this already on the BBC News Channel. And if you have you might be a little worried right now as we creep closer to April. But don’t panic!

As we understand it with the proposed changes you can still receive the tax benefits you currently enjoy but you might need to let your property to the public for longer.

According to the news article currently your must property must be available to let for 140 days and you should provide proof that the property has been let for 70 days per year to qualify for better tax benefits.

However if the government go ahead with its consultation (written 2010)  then holiday home owners will need to let their property for at least 105 days and make their property available to let for 210 days in Financial year starting April 2011.

Whilst there is no denying this is significant and a pain for holiday home owners like us – in real terms it constitutes additional bookings amounting to just 35 days (5 weeks) per year. It means now rather than selling 10 weeks per year you’ll need to sell 15.

This might not be a huge problem for many holiday home owners if your property has a particular and reliable peak season or if it’s very busy all year. However the difficulty might arise for those where the location has not yet become an established popular holiday spot, or where accessibility flights or otherwise limits your bookings. Or indeed if you use your property yourself at peak season or lend it to your family and friends over this period.

We might be able to help you work out how many weeks can be realistically sold for your holiday home if it’s somewhere in Europe so please get in touch of you’d like some advice Antony Masters  – info@rental-retreats.co.uk.

It’s worth noting that this change may not even happen – it is still a ‘consultation’ so we’ll have to see what happens in April 2011. However you should be warned that if it does happen then according to the article it will cover all holiday homes owned by all UK taxpayers across the 30 countries in the European Economic Area.

As a preventative measure you should bear this in mind for your summer bookings in 2011 as if these fall after April this year they will be subject to whatever new tax laws come into place. If you rely on getting bookings lined up before April then you might want to start thinking about how you can sell more weeks right now.

So at least for now (2010-2011) we can continue to benefit from the tax rules as they stand and as defined in the BBC article by Stephan Barratt from James Cowper Accountants below.

“the ability to offset excess property expenses, including mortgage interest, against other income at the landlord’s highest rate of income tax”

“a capital gains tax (CGT) rate of just 10% on profits realised on the sale of the property”

“the ability to defer CGT by reinvesting into new qualifying property, and to make gifts within the family without a CGT charge”

The opinions expressed here are for general information only and do not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. We are holiday home owners ourselves so these are our own thoughts.