Furnished Holiday Lettings

Many have missed one important change buried in the fine print of last month’s budget.

The favourable tax status enjoyed by furnished holiday lettings (FHL) will be removed on 5th April 2010 at which point those properties will be treated as normal investment properties.

The tax breaks they currently enjoy include the following:

• Ability to offset losses incurred against other income
• Ability to claim capital allowances on furniture etc
• Any profit on the sale of the property is treated as the sale of a business and therefore attracts entrepreneur’s relief (10% capital gains tax rate)

Property advisers believe this may have a knock-on effect on FHL property values making them less attractive to purchasers.

You should therefore consider whether you need to take any action before next April. For instance, if you were planning to sell such a property it would be better to do it in the current year if it is likely to result in a taxable gain.

One upside from the rule changes is that HMRC have decided to include foreign properties in the EU within the definition of FHL until 5th April 2010.

We therefore have a very short window of time to consider amending the last couple of tax returns for any clients with such properties who sold them in the last couple of years or who incurred losses from renting them out.

If you want to discuss this you must contact us immediately as claims to amend previous returns must be lodged by 31 July 2009.