2009's Budget, announced yesterday, includes scrapping the Furnished Holiday Lettings (FHL) rules. Currently, owners of holiday homes and cottages in the UK enjoy several benefits, but the Budget 2009 revealed that these advantages are set to be repealed in 2010. However, until then the rules will be extended to other European countries.At present, owners of UK and other holiday properties can offset any trading losses from their second home, such as loss of rental income, against any other income they may have.
Furthermore, capital gains tax (CGT) on a holiday home can be postponed by investing in another property within three years of selling the original home. Owners may also be able to benefit from Entrepreneurs' Relief and pay the business rate of CGT.As well as CGT relief and offsetting trading losses, the FHL rules include 'capital allowances'. Such allowances allow you to deduct a certain percentage for the cost of each item of furniture or equipment provided in the property. This is normally 50 per cent of the cost in the year it was purchased and 25 per cent of what is left for each year after the initial purchase.However, Alistair Darling, Britain's chancellor of the exchequer, announced that the FHL rules will be repealed from 2010-11 and owners will no longer enjoy such benefits. Nevertheless, the Budget 2009 also revealed that until these changes come into force, the FHL rules will be extended to other countries within the European Economic Area (EEA). This means that anyone liable to UK tax with properties in these countries will qualify for the tax advantages for a short period.In order for a property to qualify for the FHL benefits until 2010, it must meet certain conditions.
These include being situated in the EEA and the business being a commercial venture with a view to making a profit. The property must be available for commercial letting as holiday accommodation for a minimum of 140 days per UK tax year and let for at least 70 days. Lets of over 31 days to the same person cannot be included.
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