23 April 10
Furnished Holiday Lettings - Favourable tax rules to continue (but watch this space!)

Since the early 1980s, the owners of holiday cottages and properties have enjoyed special tax rules that allow them a number of significant tax breaks.  This preferential tax treatment was due to come to an end on 6 April 2010, but at the 11th hour, the changes were dropped by the government i.e. the favourable tax rules continue for now, in the same way that they have for the last 30 years or so.  These favourable tax rules are quite numerous, but the main ones are:

• The ability to reduce income tax liabilities by being able to claim a greater range of expenses and capital allowances (and the option of offsetting losses against other taxable income)
• The ability to reduce the amount of capital gains tax payable when the property is sold
• The ability to reduce the amount of capital gains tax payable on the sale of other assets/investments, by purchasing a holiday letting property

So why has the government done a U-turn?

Well, it is all to do with the general election, but not in the way that you might think i.e. the government has not done this purely to win extra votes!

The reason for the u-turn is that the calling of the general election meant that the parliamentary time for considering all of the Budget 2010 tax changes was significantly reduced, which resulted in the three main political parties horse-trading over which tax changes should be enacted in the Finance Bill (before parliament was formally dissolved by the calling of the general election).  Our understanding is that the two main opposition parties wanted the favourable tax rules to continue and the government reluctantly agreed to do this.

So is this all good news for property owners?

Yes, but watch this space!

Naturally the future of the favourable tax rules will be strongly influenced by the outcome of the general election.

If Labour are re-elected, they have indicated that they will bring in the tax changes that they were originally going to (i.e. the favourable tax treatment of furnished holiday lettings will be abolished).  Labour have yet to indicate when this change would take effect, so it could be any of the following:

• the change may be back-dated to 6 April 2010, or
• the change may take place immediately after the general election, or
• the change may be deferred until the start of next tax year i.e. 6 April 2011

If there is a hung-parliament, or a change in government, then there is every possibility that the favoured tax rules will continue i.e. their proposed abolition will be shelved for good.

As an aside, cider drinkers will also be pleased to note that as part of the horse-trading process, the government also relaxed its stance on the proposed new cider duty, as this will now have a very short shelf-life and will be withdrawn on 30 June 2010.  So if you are the owner of a holiday letting property and like the odd glass of Strongbow, you may have cause for an extra glass when you hear the results of the general election on 7 May 2010 (whether that be in celebration or to drown your sorrows!).

If you need any advice as to how this affects you, please contact your usual adviser at Dodd & Co, or speak to Rachel Lamb on 01768 864466