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Jun 03
2009
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Attention all overseas property holders - Government extends tax relief shocker!
A little-known and little-used relief available to individuals is the ability to set losses incurred on furnished holiday lettings against general income. This is probably because there are a great number of restrictions on the circumstances under which the loss can be used in this way. However, the good news is that one of the main restrictions has been relaxed - the bad news is that the relief will be abolished completely in less than a year!
Up until this year's Budget, the property being let had to be situated in the UK, however this has now been extended to any property situated in the European Economic Area. The reason for this sudden and generous extension is that the Government was concerned that the restriction of relief to UK situated properties contravened European Union law.
The result is that any owner of property situated in the European Economic Area can now claim for losses incurred on that property to be set against income providing they meet the following conditions:
- the property must be situated in the EEA;
- the business must be carried on commercially, and with a view to a profit;
- The property must be available for commercial letting as holiday accommodation to the public for at least 140 days during the relevant 12 month period;
- The property must be commercially let as holiday accommodation to members of the public for at least 70 days during the relevant 12 month period. A letting for a period of longer term occupation is not a letting as holiday accommodation for the purposes of the letting condition; and
- Not more than 155 days must fall during periods of longer term occupation.
However, anybody looking to take advantage of this generous extension to the rules needs to act quickly as the Government, no doubt mindful of the potential tax cost of the new rules, intends to abolish all furnished holiday lettings relief in April 2010.
As well as claiming for the current year, property owners can also make a claim for loss relief for previous years by amending their personal tax return for earlier years providing this is completed within one year from 31 January following the date the return was submitted. In most cases therefore it will be possible to amend your return and claim losses for overseas holiday lets for 2006/2007 onwards.
In addition to being able to set losses against general income, the extension of the definition of furnished holiday letting also provides for generous capital gains tax reliefs which could also prove extremely valuable.
Therefore, if you do have an overseas property which meets the criteria set out above, don't look this unexpected gift horse in the mouth and act now to take advantage of this generous new relief before it is taken away again!
