Get tax relief on holiday lets before it’s too late

Tax relief on furnished holiday let properties is set to disappear next year, and accountant Old Mill is warning those who have invested to take action now.

[UKPRwire, Mon Jul 06 2009] In this year’s Budget, Alistair Darling announced a number of changes to the tax system, and the result is a significant cut in tax relief, as Mike Butler, Partner at Old Mill Accountancy explains.

“From April 6 2010, holiday let properties will no longer be seen as a trade but as an investment and be taxed in exactly the same way as other rental properties; they will therefore lose many of the tax relief associated with trading assets,” he says.

The main changes will be around Capital Gain Tax relief; for example, rollover relief will disappear, which means that if a holiday let property is sold in the future, the gain will no longer be allowed to be rolled over into the further trading assets. It also means that holiday lets will no longer be a qualifying asset in to which to roll a gain.

“There is also further disappointment where Entrepreneurs Relief is concerned,” explains Mr Butler. “Those that have been running holiday lets as businesses may have expected to be able to claim the reduced 10 per cent Capital Gains Tax rate on selling a holiday let property when it eventually came to retire or dispose of the business, but unfortunately, that relief will no longer be available for holiday lets.”

The third type of Capital Gains Tax relief to disappear, warns Old Mill, is holdover relief. Holdover relief is where holiday let properties are passed down the generations in order to avoid paying the Capital Gains Tax arising on the disposal by holding over the capital gain.

And, says Old Mill, it is not just Capital Gains Tax on holiday lets that has been affected by the latest Budget – there are other tax implications too.

“The actual level of taxable profit is likely to increase with restrictions on the amount of capital allowances that could be claimed going forward,” says Mr Butler, “and in addition, rental incomes of all descriptions may be passed under with a single schedule A format.”

Old Mill is encouraging those investors that will be affected by the tax changes to act now.

“There is a window of opportunity to plan in advance prior to 6 April 2010, and tax payers owning holiday lets must be talking to their accountants right now to identify what actions they do need to take,” says Mr Butler.

He continues; “for example, passing an asset down before many of the Capital Gains Tax reliefs disappear for good or rolling a gain out of a holiday let property into an asset that can continue to harbour and transfer that gain.

“Another, cleverer ploy that could be facilitated by a series of transactions between family members that may not actually require any formal disposal of the holiday let outside the family unit. In all circumstances, we are of course planning ahead to save a future tax problem by taking advantage of the rules that we still currently have available to us,” he said.

If you have a holiday let property and want to speak to a tax specialist at Old Mill about your options, call 01749 343366 or email sheptonmallet@oldmillgroup.co.uk.