Short-life tax benefits for your place in the sun

UK landlords who rent out furnished holiday homes in Europe can, for a short time, benefit from advantageous tax rules which used to apply only to properties in this country.

“They must act before the end of July to get the full benefit of a back-dated change in rules that are to be repealed next year,” says Geoff Banks, President of Leicestershire and Northamptonshire Society of Chartered Accountants (LANSCA).

The government is to abolish the existing furnished holiday lettings (FHL) rules from 2010/11. Until then, FHL rules will apply to properties in Europe as well as in the UK, and tax returns going back to 2006/07 can be amended to take advantage of this.

Amendments to income and capital gains tax (CGT) returns for 2007/08 must be made to HM Revenue and Customs by 31 January 2010 and for any returns for 2008/09 already submitted, by 31 January 2011.

“Landlords with income from furnished holiday accommodation in this country currently enjoy advantages including CGT reliefs, capital allowances and offsetting losses,” explains Geoff.

“Those with income from furnished holiday accommodation elsewhere in the European Economic Area (EEA) have not previously qualified and were treated instead in the same way as landlords with other types of property income.

“It was announced in this year’s Budget that this difference may not be compliant with European law and that the government has decided to repeal the FHL rules from 2010/11. However, until then they will apply to furnished holiday accommodation elsewhere in the EEA.

“Landlords or their advisers need to reconsider previously submitted tax returns, especially in respect of capital gains, although foreign tax liabilities may make any reduction in the UK CGT liability rather academic.”

The rules apply to companies as well as to individuals.

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