Good news and bad news
The Budget in April included some good news and bad news for owners of furnished holiday lettings (FHLs).
Property letting is not a trade for tax purposes, but owners of FHLs that meet certain conditions can enjoy a number of potential tax benefits associated with trading activities, including:
- entrepreneurs’ relief;
- rollover and holdover relief;
- IHT business property relief;
- capital allowances; and
- loss relief (against general income);
The good news is that landlords with FHLs elsewhere in the European Economic Area (EEA) can now benefit from FHL tax treatment in respect of them, if the qualifying conditions for FHL treatment are satisfied. Previously, they were treated in the same way as any other type of overseas property.
The bad news is that the FHL rules are being repealed from next April, for both UK and EEA properties.
In the meantime, there is a window of opportunity to take advantage of the FHL rules. For example, HMRC will accept claims for relief or requests for FHL treatment on EEA properties within the normal time limits for amending self assessment return.
However, certain claims such as rollover relief and holdover relief are subject to a longer claim period (i.e. 5 years from 31 January following the tax year in question for individuals, or within 6 years from the end of the accounting period for companies). In addition, HMRC will accept such claims as CGT taper relief, relief for pension contributions and substantial shareholdings exemption within this longer timeframe.
Furthermore, HMRC will accept late amendments to self assessment returns for 2007 (individuals) and corporation tax returns for accounting periods ending after 31 December 2006, in respect of FHLs elsewhere within the EEA.
Grab those reliefs!
No capital allowances are available for expenditure incurred on plant and machinery used in a dwelling house. However, under the FHL rules, capital allowances may be claimed on such expenditure. Claims for plant and machinery expenditure in respect of EEA FHL dwelling houses are also possible for earlier periods, within certain limits. However, claims for the 10% wear and tear allowance will not be available.
The proposed repeal of FHL tax treatment means that FHL owners who wish to claim entrepreneurs’ relief will need to sell their FHL businesses by 5 April 2010. Further details on FHL claims in respect of EEA properties are available in a technical note available via the HMRC website.
The above article is reproduced from ‘Practice Update’ (May/June 2009), a tax Newsletter produced by Mark McLaughlin Associates Ltd. See the Newsletters section.