Last chance for tax relief on furnished holiday lets
Property owners running furnished holiday lets must act now to avoid hefty tax penalties, according to accountant Old Mill. From 6 April 2010, holiday properties will lose their current beneficial tax status, and become liable to Capital Gains Tax (GCT) and Income Tax in the same way as other rental properties. “The changes will be extremely costly for owners of holiday cottages across the South West,” says Partner Mike Butler. “In the past holiday lets have been a useful vehicle to reduce CGT liabilities, and make an extra income at the same time. But from April next year many of those benefits will be lost.” Holiday lets will no longer qualify as running a trade, instead falling into the category of investment activity. “Consequently, many of the tax reliefs associated with the trading property will also disappear.” Of particular significance is the loss of CGT reliefs. Holiday lets will no longer qualify for Rollover Relief, meaning that upon the sale of the property, the landowner will not be able to roll over capital gains into other trading assets – nor will let properties qualify as assets into which gains can be rolled. Holdover Relief will also be withdrawn, meaning that landowners wishing to pass the property down to their children will be liable to pay the full CGT bill, instead of passing it on to their beneficiaries. Those running holiday lets as a businesses will also lose out on Entrepreneur’s Relief, which currently offers a reduced rate of 10% CGT upon the sale of the business. “There are also other tax implications,” says Mr Butler. “The actual level of taxable profit is likely to increase, due to restrictions on the amount of Capital Allowances that can be claimed. In addition, rental income will be fully taxable, without the benefit of offsetting losses against other business income.” Property owners should act now to mitigate potential losses, he adds. “There is a window of opportunity to plan in advance prior to 6 April 2010. Anyone owning a holiday let should be talking to their accountant to identify what actions they need to take. “Those wanting to sell or gift a property should consider doing it before the cut-off date, to make the most of the tax reliefs which are still available. Rolling a gain out of a holiday let into an asset that can continue to benefit from Rollover Relief may also be possible, without any formal disposal of the property.” A bit of careful forward planning now could result in considerable savings later, adds Mr Butler. “Procrastination will not only be the thief of time but also the thief of a significant amount of tax.”
