M+A Partners Update: Furnished Holiday Lettings Reprieve
Controversial plans to scrap the tax breaks available to owners of furnished holiday lets were unexpectedly dropped from the Finance Bill this week.
The timing of this year’s budget on 24 March meant that it was widely anticipated that cross party support would be needed to ‘fast track’ the Finance Bill before Parliament is dissolved ahead of the election.
In a bid to ensure that measures relating to the new 50% top rate of income tax and changes to pension tax relief for high earners successfully reached the statute, the Government had to sacrifice some of the less popular measures it had announced. These include the increased duty on cider, the broadband tax to be applied to landlines from October 2010 and, most unexpectedly, the move to abolish the furnished holiday letting rules.
The abolition of the beneficial tax rules relating to property let as holiday accommodation was made in a shock announcement on 22 April 2009, and should have come into effect on 6 April 2010. The Government had published draft legislation to enact the changes, but fierce criticism from the tourism industry and the Opposition parties created a final hurdle to prevent it from becoming law.
Over 100,000 businesses would have been affected by the change. The repeal of the rules would have reduced the attraction of providing self catering accommodation as well as making it more difficult for owners to invest in the upkeep of their properties.
The furnished holiday letting rules permit losses arising on the letting of qualifying holiday accommodation to be offset against a taxpayer’s other income. Owners of furnished holiday accommodation can also access capital gains tax reliefs not available to other rental property owners, and also obtain an immediate tax deduction for expenditure on furnishings and equipment for the property. The proposed withdrawal of these rules from 6 April 2010 had prompted many property owners to take action to mitigate the impact of the anticipated loss of the beneficial tax reliefs, for example by accelerating refurbishment expenditure or even selling their properties.
Clare Goodswen of M A Partners says “It remains to be seen whether the planned removal of the furnished holiday letting tax breaks will be revived in a later Finance Bill should Labour be re-elected on 6 May. Given that the rules were extended to qualifying properties in Europe last year, it would be very surprising if the abandoned legislation doesn’t return to a later Finance Bill should Labour return to power.
In the meantime, this is a welcome reprieve for those taxpayers taking advantage of these tax reliefs.”
If you would like further information on the content of this article please contact Clare Goodswen on 01603 227600 or email clare.goodswen@mapartners.co.uk