Budget 2009 announces the repeal of the Furnished Holiday Lettings (FHL) rules

RabbitMad

What do you think this means?- this was all that was in the budget report.

I bet it will be to stop you offsetting losses against income tax.

silvercar

Holiday lettings tax rules allowed any profit on the letting to be set against income tax, all other lettings count as unearned income and can't be set against income tax.

I guess it puts holiday lettings on the same basis as all other letting.

For the consumer it should mean that long term holiday lettings will come down in price as upto now holiday letting landlords had a tax incentive to change tenants after only a few weeks.

May push a few holiday lets to the wall as the tax treatment makes them unviable.

Jelliebeen

All the details can be seen at http://www.hmrc.gov.uk/budget2009/furnished-hol-lets-1015.pdf

Basically, benefits such as offsetting losses, capital allowances and CGT relief are being repealed in 2010.

However, up til 2010 the current benefits and rules will be extended to owners liable to UK tax with properties in the EEA, not just the UK.

So good news in the short term. Not so good in the long term.

poppysarah

I don't understand how you offset profit against income tax?

If i have a real job of 20k a year and holiday rental profit of 20k a year - what happens?

silvercar

poppysarah wrote: »

I don't understand how you offset profit against income tax?

If i have a real job of 20k a year and holiday rental profit of 20k a year - what happens?

Its all about losses (well paper losses) not profits.

At the moment if you made a loss on a BTL you could put that loss against rental income but not use it to reduce your income tax on earned income. Holiday lets had the additional tax advantage that you could put your holiday let losses against your income, thus reducing your income tax bill.

So say you had a holiday let, spent a lot of money improving it, you would be allowed to put the costs of improvement against your income tax bill.

RabbitMad

Mortgage interest is what springs to mind here. Say you buy a property for £200,000 on a 5% mortgage - thats £10,000 a year in interest. If the rents from the holiday let only broke evn not including this you would be able to knock £10K of your income for income tax purposes.

If you were a higher rate tax payer that would be equivalent to £4k

I think this might make some holiday lets unviable and reduce consumer choice.

lucinia

I have a holidaylet which I have run for eight years. It is very profitable so I don't offset any losses, I put down the interest only on the mortgage relating to the holiday house, not our main home and claim only for legit expenses. We do not intend to sell it.

I can't figure out if this will change. My main question is will I still be able to claim for expenses including mortgage interest or will it be without? It would be good to have clarification on this.

Many thanks.

silvercar

lucinia wrote: »

I have a holidaylet which I have run for eight years. It is very profitable so I don't offset any losses, I put down the interest only on the mortgage relating to the holiday house, not our main home and claim only for legit expenses. We do not intend to sell it.

I can't figure out if this will change. My main question is will I still be able to claim for expenses including mortgage interest or will it be without? It would be good to have clarification on this.

Many thanks.

You will still be able to claim for legit expenses but only against rental income not against PAYE. So if your rental income is lower than the expenses (say you don't let it out for many weeks this year) then you you will make a loss.

Upto now you could have put this loss against your other income (PAYE, self-employed work or dividends or savings interest, now all you can do is declare the loss on your tax return and carry it forward to put against next year's rental income.

lucinia

Thanks for the info.

As I've been lucky enough to make a profit each year and I'm a stay at home mum, I guess this shouldn't affect me unless I decided to sell. I feel sorry for all those people who are going to have to sell in a depressed market with probably a lot of holiday houses being put up for sale before the new rules kick in. I decided to invest in a holiday house instead of a pension or a savings account as many people have. One does wonder if pressure from the financial world has been brought to bear on the government to take these measures as they were losing potential clients who had decided to go it alone - and make a success of it compared to the pension companies.

Most of us are just trying to provide a future for our kids.

wisconsin

I am just about to sign the contract to buy a holiday cottage to let out weekly.
Can anyone explain to me in plain English the new tax rules from 2010-2011 for letting holida cottages? I am just about the sign contract for holiday cottage that I want to rent in the future, but I can't find a website that explains it clearly. I don't know what the rules are at the moment and what the changes mean.
Will I be able to charge for bedding, towels to be cleaned/ironed each week?
Will I be able to charge for cottage to be cleaned each week?
Will I be able to charge for ongoing maintenance?
Will I be able to charge for furniture, cutlery, washing machine etc to furnish the cottage?
etc etc etc
How will it affect me?
Any help would be greatfully appreciated ??? Thank you.

p.s. Doesn't the Government realise if holiday let landlords sell their properties then there will be a shortage of English holidays and people will holiday abroad. Meaning less money for the Government in taxation and more CO2 in flying around the world. Shows they don't really care about the CO2!!:mad:

silvercar

Don't know why you ever thought the government cared for CO2 unless it had £££ signs in front of it! No-one has any money for holidays, here or abroad, so factor that into your calculations.

All genuine expenses can be claimed against rental income. The main effect of the changes is that you can't put expenses against PAYE/ savings income only against rental income. Any losses on the rental will be carried forward to next year instead.