Osborne offers tax relief to holiday homeowners
People who own a holiday-home in the UK will not be stripped of a range of tax benefits after Chancellor George Osborne decided to reinstate generous tax rules for furnished holiday lettings.
The move is likely to please thousands of holiday-home owners who are relying on the income they receive from their second homes.
In his Budget speech, the chancellor revealed the coalition government had decided to bin Labour’s proposal to repeal the special tax rules for furnished holiday lettings.
Instead, the government will consult over the summer over what to do to ensure the tax rules meet EU legal requirements.
In the meantime, the current rules continue to apply for this tax year.
Under these, holiday homeowners enjoy several tax benefits 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.
John Whiting, tax policy director for the CIOT, says while the proposal is a welcomed it will only offer a temporary reprieve for holiday homeowners.
“Many in the furnished holiday lettings sector have been concerned about the additional administration that the withdrawal of the tax rules might lead to. Abolishing the furnished holiday lettings rules means convincing HM Revenue & Customs that there is a trade – otherwise relief would be much lower.
“This isn’t a complete reversal but a welcome sign of the government listening to calls we and others have made to consult before bringing in changes. It will enable the sector and tax advisers to make proposals to ease the burden of businesses which lose the protection of the furnished holiday lettings rules.”
For a property to qualify as a ‘furnished holiday lettings’ the property has to be furnished, available for letting to holidaymakers for at least 140 days a year, let out for at least 70 days a year and 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 previous government had planned to abolish the furnished holiday lettings rules, though the measure was dropped from the pre-election Finance Bill.
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.