Investment Property Accountants - WARR & CO

Investment Property Accountants

The Budget 2009 - Furnished Holiday Lettings

The Chancellor’s recent Budget included amendment to the taxation of Furnished Holiday Lettings.

Presently, landlords with income from furnished holiday accommodation in the UK are treated as if they are trading for certain tax purposes, as long as they satisfy certain tests, under the Furnished Holiday Lettings (FHL) rules. Currently a home qualifies as a holiday property if it is furnished, being run as a commercial business and available for rent to the public for at least 140 days per year. It must also be let for at least 70 days a year to attract the tax benefits. This enables individuals to write off “trading” losses from second homes against personal, earned income and to treat profits as income for pension purposes.

Prior to the Budget, landlords with income from furnished holiday accommodation elsewhere in the European Economic Area (EEA) could not qualify for this treatment. They were treated instead in the same way as landlords of other types of overseas property, under the property income rules.

The Government has announced two changes in the Budget. Firstly, it has decided to repeal the FHL rules and, from 2010/2011, rental profit will be assessed the same as other property income.

The second change is that the present differentiation in tax treatment between UK holiday property and those overseas may not be compliant with European law. Therefore, until the FHL rules are repealed, HMRC will regard the current FHL rules as applying to furnished holiday accommodation elsewhere in the EEA.

In adopting this revised approach, the Government is allowing those affected to submit amended tax returns for 2006/2007 and where appropriate to claim refunds. The deadline for making a late amendment is 31st July 2009. Returns that are still within the normal time limit for amendment may continue to be amended within that limit.

Of course a further consequence of repealing the FHL rules from 2010/2011 is that the Capital Gains Tax (CGT) treatment will also change. At present, when an individual disposes of such properties, they may be able to claim entrepreneurs’ relief. This reduces the effective rate of CGT from 18% to 10% (4/9ths on lifetime gains of up to £1,000,000). Disposal from 6th April 2010 will no longer qualify for this relief and the full rate of CGT will, therefore, apply. Some holiday let investors may think of disposing of such properties before then, although clearly this decision should be made with current property market conditions and values in mind, i.e. do not let the tax tail wag the investment dog!

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Date of Article: 14th May 2009

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This domain is owned by Warr & Co Chartered Accountants which is a member of the Institute of Chartered Accountants in England & Wales (ICAEW). Whilst the information detailed here is updated regularly to ensure it remains factually correct, it does not in any way constitute specific advice and no responsibility shall be accepted for any actions taken directly as a consequence of reading it. If you would like to discuss any of the points raised and / or engage our services in providing advice specific to your personal circumstances, please feel free to contact Peter Edwards on 0161 477 6789 or email us at