Darling delivers blow to holiday-homeowners
People who own a holiday-home in the UK will lose a range of tax benefits from next April after a hidden clause in the Budget revealed the holiday lettings rules are to be scrapped.
Under current legislation, landlords who own a holiday property in the UK enjoy several benefits under the Furnished Holiday Lettings (FHL) rules, including being able to write off any trading losses (such as loss of rental income) from their second home on their tax bill and being allowed to postpone any capital gains tax by investing in another property.
A furnished holiday letting business may also be exempt from inheritance tax where the lettings are short-term and the owner is significantly involved with the holidaymakers’ activities.
However, the 2009 Budget reveals these benefits will be abolished from April 2010. The only silver lining is that, until that happens, the FHL rules will be extended to those with qualifying homes within the EU.
The move is likely to infuriate thousands of holiday-home owners who have been relying on the income they’ve received from their second homes.
For a property to qualify as a 'furnished holiday lettings’ it must be furnished, available for letting to holidaymakers for at least 140 days a year and let out for at least 70 days a year - but not occupied for more than 31 days by the same person in any seven-month period.
The property also has to be let out to holidaymakers and tourists in order to qualify.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.