Technical Briefings
10 February 2010
Furnished holiday homes in the EEA
Due to discrepancies between UK and European Law owners of furnished holiday accommodation in the EEA may now temporarily qualify for tax reliefs previously only available for UK holiday lets. However these tax advantages will be lost from April 2010 and immediate action is required.
Changes were announced in the 2009 Budget potentially offering tax breaks for anyone with an overseas holiday home in the European Economic Area (EEA) which has been let as holiday accommodation. If the property qualifies as furnished holiday accommodation and a rental loss has been made then it may be possible to claim tax relief for this.
Additional relief may also be available on any qualifying property which has been sold giving rise to a capital gain.
What are the changes relating to holiday accommodation?
Under existing rules, landlords with income from furnished holiday accommodation in the UK are treated for certain tax purposes as if they are trading, which provides some tax advantages over general property letting. Until the last Budget these rules did not apply to furnished holiday accommodation elsewhere in the European Economic Area (EEA).
The restriction of this tax rule to UK properties only was considered to possibly be in breach of European Law and therefore it was announced in the budget that the Furnished Holiday Letting (FHL) rules would also apply to furnished holiday accommodation elsewhere in the EEA.
Who is affected?
Individuals, partnerships and companies who let qualifying furnished holiday property within the EEA (but outside the UK), and who are liable to UK tax on the income and capital gains from the property.
What are the qualifying conditions for furnished holiday accommodation?
To qualify for the tax advantages under the FHL rules the property must be situated in the EEA and the business must be carried on commercially with a view to the realisation of profit. The property must be available for letting as holiday accommodation for at least 140 days during a 12 month period and must have actually been let as such for at least 70 days (excluding any longer term occupation of more than 31 days).
What tax advantages are available?
Provided the above conditions are met, the following may be available:
- loss relief, by the offset of any trading losses against other income
- capital allowances on expenditure incurred in providing plant and machinery for use in the FHL (but there will be no entitlement to the 10% wear and tear allowance or a deduction for the landlords energy saving allowance)
- certain capital gains tax reliefs, including business asset roll-over relief, entrepreneurs relief, relief for gifts of business assets, relief for loans to traders and exemptions for disposals of shares by companies with a substantial shareholding
- inclusion of income from qualifying FHL in the EEA within relevant earnings when calculating the maximum amount of pension contribution and individual may make
What are the time limits for claims?
Claims can be made within the normal time limits and therefore any qualifying trading losses for the year ending 5 April 2008 must be claimed by 31 January 2010. Immediate action is therefore required. Claims for capital gains tax reliefs may be made within five years of 31 January following the tax year of disposal.
Will these tax breaks continue in the future?
Unfortunately it’s not all good news! The extension of the relief to holiday properties in the EEA and the tax advantages available will only remain until April 2010.
The government has announced that in 2010/2011 the FHL rules will be repealed for holiday lets situated both in the UK and elsewhere in the EEA. From 6 April 2010 (1 April 2010 for companies) holiday lettings income will be taxed under the normal rules for property businesses and the reliefs outlined above will no longer be available.