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Holiday let tax changes 2011/2012

As announced in the 2011 budget, the changes to the Furnished Holiday Lets (FHL) tax rules come into effect today – April 6.

From April 6 it will only be possible to offset trading losses from a furnished holiday lettings business against certain income from that same FHL business. The previous rules allowed holiday let owners to offset losses against other income to lower their annual income tax bill.

FHL relief allows holiday home owners to deduct expenses such as mortgage interest, cleaning, agent commission, utilities, business rates, holiday let insurance, any improvements and furnishings from their rental income.

Proposed furnished holiday let tax changes to apply from April 2012

It is proposed that from April 2012, in order to qualify for furnished holiday letting tax breaks holiday home owners must let a property for an annual minimum of 105 days (raised from 10 weeks) and the property should be available to let for no less than 210 days a year (increased from 20 weeks).

Also, holiday lets must be no longer than 31 days. This will no doubt disqualify many summer holiday lets that take a six month lets in the quieter winter months.

There will be a ‘period of grace’ to allow businesses that don’t continue to meet the ‘actually let’ test for 1 or 2 years to elect to continue to qualify throughout that period, providing that there was genuine intention to meet the condition.

How will this affect holiday lets?

For a profitable/established holiday let business, this year’s tax changes shouldn’t be of huge concern. However, new entrants to the holiday letting industry may struggle to meet the new criteria due to high set-up costs and unpredictable bookings. Also, those who bought second homes in an area with low rental returns but rising maintenance costs could be forced to sell up.

If you are looking to invest in a holiday let remember – location, location, location. It’s a tough business, often with little financial rewards. But as a ‘lifestyle investment’ they can be priceless.

You should consult your financial advisor and/or accountant for specialist holiday lettings tax advice.

Further reading:
Keep updated with the latest holiday lettings tax advice with this list of essential holiday lettings tax resources and guides.

Furnished holiday let tax changes 2011
April 2011 furnished holiday lettings tax changes

As announced in the 2011 budget, the changes to the Furnished Holiday Lets (FHL) tax rules come into effect today – April 6.

From April 6 it will only be possible to offset trading losses from a furnished holiday lettings business against certain income from that same FHL business. The previous rules allowed holiday let owners to offset losses against other income to lower their annual income tax bill.

FHL relief allows holiday home owners to deduct expenses such as mortgage interest, cleaning, agent commission, utilities, business rates, holiday let insurance, any improvements and furnishings from their rental income.

Proposed furnished holiday let tax changes to apply from April 2012

It is proposed that from April 2012, in order to qualify for furnished holiday letting tax breaks holiday home owners must let a property for an annual minimum of 105 days (raised from 10 weeks) and the property should be available to let for no less than 210 days a year (increased from 20 weeks).

Also, holiday lets must be no longer than 31 days. This will no doubt disqualify many summer holiday lets that take a six month lets in the quieter winter months.

There will be a ‘period of grace’ to allow businesses that don’t continue to meet the ‘actually let’ test for 1 or 2 years to elect to continue to qualify throughout that period, providing that there was genuine intention to meet the condition.

How will this affect holiday lets?

For a profitable/established holiday let business, this year’s tax changes shouldn’t be of huge concern. However, new entrants to the holiday letting industry may struggle to meet the new criteria due to high set-up costs and unpredictable bookings. Also, those who bought second homes in an area with low rental returns but rising maintenance costs could be forced to sell up.

If you are looking to invest in a holiday let remember – location, location, location. It’s a tough business, often with little financial rewards. But as a ‘lifestyle investment’ they can be priceless.

You should consult your financial advisor and/or accountant for specialist holiday lettings tax advice.

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