(Edit 8 April 2010 – Due to the general election the abolition of the Furnished Holiday Accommodation reliefs from 6 April 2010 has been suspended, so the status quo continues).
The tax year 2009-10 is the last year the present tax advantages that apply to the letting of furnished holiday let property will be available. From the 6 April 2010 FHL’s will be treated for tax purposes the same as other let property.
Owners of FHL property are currently treated as traders and the income, losses and gains on sale are potentially available for a number of tax advantages compared to non-FHL property owners. These advantages include:
- Profits are deemed to be trading income and are taken into account for pension purposes.
- Certain capital expenditure will qualify for the Annual Investment Allowance. (100% tax deduction).
- Losses are deemed to be trading losses and available to set off against any other income of the owner(s).
- Gains on sale may qualify for rollover relief and entrepreneurs’ relief.
For 2009-10 and certain earlier years, property owned in the EEA (European Economic Area) was included as FHL property as long as the usual qualifying conditions were met. This was announced in the 2009 Budget.
It is also worth mentioning that FHL is not treated as trading for all tax purposes. For example, there is no special treatment for business property relief for inheritance tax purposes. Generally speaking FHL will not qualify for business property relief unless part of an enterprise incorporating other facilities.
What to do?
If you are contemplating the sale of FHL property it may make sense to complete the transaction before the present capital gains tax concessions expire on the 5 April 2010. Potentially the gain on the sale may qualify for Entrepreneurs’ Relief. This could reduce your tax on any gain to just 10%, as long as the sale meets the required criteria.
If you are a long term investor and have no intention of selling, you could consider bringing forward any capital expenditure that may qualify as part of your Annual Investment Allowance.
For 2009-10 you are allowed to claim a 100% deduction for expenditure up to £50,000. If this claim either created or enhanced an overall loss, you could set off the loss against your other earnings and reduce your liability for 2009-10. (You may also be able to carry losses back if this is more advantageous.)
If you own FHL property, now would be a good time to take a hard look at the tax planning advantages that are still in date. As soon as we cross the 5 April 2010 threshold all the present options are lost!
Please call us on 01983 614108 if you would like more information on this topic.