Hopes dashed for holiday home businesses as harsh tax rules are confirmed in pre-Budget report

The recent pre-Budget report confirmed the introduction of new tax rules which will hit many people who let holiday accommodation, says Helen Demuth, tax partner at accountants and business advisers, Smith & Williamson. However, there is a brief window of opportunity before the rules take effect.

There could be thousands of pounds at stake for many people who let holiday accommodation due to changes in tax legislation. If you could usefully make repairs to your holiday property, decorate it or buy new furniture, try to complete these works by 5 April 2010. This could save you money if the extra costs create or increase a loss.

The new rules will potentially affect people with just one property they rent out and which they may also use for their own holidays as well full-scale businesses offering multi properties with significant extra services.

“If you let accommodation as short lets, 2009/10 is the last tax year when you will be able to offset losses arising from your business against income from employment or investments. This is the end of a very valuable tax rule and it may make financial sense for people to get work done to their property by 5 April 2010,”  said Helen.

Similarly, if you are considering selling the property, try to exchange contracts by 5 April 2010. If you do, the profit on the sale may qualify for a special tax concession so that you pay tax at just 10% on the profit, rather than the standard 18% capital gains tax rate.

However, the change in tax rules is good news for people who let holiday property in the EU. While they also only have until 5 April 2010 to benefit from the rules, this is the first time that such properties have qualified for the tax breaks. So anyone with such property should review the opportunities carefully.

The tax changes could adversely impact those saving for retirement. From April 2010, you will be unable to treat profits from holiday lets as relevant income for determining the amount you can put into a pension. Therefore, some people may prefer to defer expenditure so they can maximise profits from their holiday business this year. This would enable extra pension contributions to be made before the rules change.

The rules are complex so professional advice is necessary. Helen warns: “To qualify, the property must be let on a commercial basis for at least 70 days a year, ignoring lets exceeding 31 days and be available for rental for at least 140 days a year. No letting must exceed 31 consecutive days for a period of at least 155 days a year.”

For more information contact: 

Helen Demuth, tax partner at Smith & Williamson on 0117 376 2073

Email Helen Demuth

Disclaimer

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

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Smith & Williamson is an independent professional and financial services group employing around 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. The group operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Salisbury, Southampton, and Worcester.

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