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.