TaxPersonal TaxHoliday home relief won’t last

Holiday home relief won’t last

Government’s move to bring UK tax treatments in line with Europe means tens of thousands of people who had been able to offset losses on their properties against income tax will now face a tax hit

Middle Englanders who let out holiday cottages will suffer as a result of the
government’s move to bring UK tax treatments in line with Europe, according to
tax experts.

Tax relief for furnished holiday lettings on UK property was not available
for homes elsewhere in the European economic area, so the government has moved
to allow this relief for Europe.

This may seem like good news for people in the UK with holiday homes to let
abroad, but from 2010/11 it will repeal the rules for everyone, so no relief
will be available.

Anne Redston, visiting professor at Kings College London, says the move would
hit tens of thousands of people who had been able to offset losses on the
properties against income tax. ‘There are thousands in the UK letting out UK
property, huge numbers of properties within this regime,’ she says.

‘I can understand the government’s reasons, but it will be very unpopular and
a blow for many. It’s harsh and unexpected.’

But RSM Bentley Jennison tax partner Rob Meek says that advisers should focus
on working quickly with their clients who own European holiday homes to take
advantage of the short term extension of reliefs before it is repealed.

‘You could potentially offset losses from these homes, or if there’s rental
income you could set it towards your pension contributions. You could also see
if you can claim capital allowances against the furniture.’

There was good news for people owning farms and woodland abroad. IHT relief
on agricultural property and woodlands has been extended across Europe – without
the repeal that will hit holiday lettings.

These moves by the government bring the UK further in line with the Treaty of
Rome principles of free movement of workers, businesses and capital between EU
states.

Other changes include: A UK tax credit will now be available in respect of
all dividends received from non-UK companies; and dividends received by UK
companies from overseas will now be exempt from UK corporation tax in the
majority of cases.

Meek said the move was a ‘long time coming’, but was disappointed that
changes to holiday lettings would be short-lived.

‘I’ve always thought that this was an EU issue, but they’ve moved and now
[tax] advantages will be abolished in the future.’

HM Revenue & Customs will accept late claims amendments to income tax and
capital gains tax returns for the tax year ending 5 April 2007 and corporation
tax returns for the accounting periods on or after 31 December 2006 for European
holiday lettings.

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