UK Tourist Industry Threatened By Holiday Letting Rule Changes

by Robin Pilgrim, LawAndTax-News.com, London

01 May 2009

The UK’s tourist industry was expecting a bumper summer season in 2009, but now faces turmoil as business owners consider whether or not to sell up before tax changes take effect from April 6, 2010, PKF Accountants and business advisers has warned.

According to PKF, longstanding tax rules effectively treat furnished holiday lettings as a trade and benefit a wide range of property owners from businesses such as hotels with self-catering accommodation, holiday parks, static caravan sites and purpose-built holiday complexes, through to single holiday home owners. This trading tax treatment is set to cease from April 6, 2010.

Peter Harrup, tax partner at PKF’s Ipswich office, explained:

“Given the government’s current financial difficulties, it is perhaps no surprise that tax breaks for individuals owning holiday homes are being removed. But for those running larger holiday letting businesses, these changes will bite particularly hard. These are businesses like any other and yet, because the income is from property, they will in future be denied many of the reliefs available to other businesses at a time when they are very much needed. “

Since 1983/84, special rules for furnished holiday lets (FHLs) have treated the letting profits as the trading income for their owners and operators, but only properties situated in the UK qualified. The government now accepts that excluding such properties located in other countries within the European Economic Area (EEA) from benefiting from these advantages, could be illegal under EU law.

Therefore the rules are to be extended to include FHLs in the EEA for tax years 2006/07 to 2009/10, before this special treatment is abolished.

Mr Harrup continued:

“While it is only fair that UK owners letting property in Europe can now qualify for this tax treatment, it does not mean that it is sensible to withdraw tax breaks from all UK holiday lettings from April 2010 onwards.”

Whether owners let holiday properties in the UK or Europe, if they want to make the most of the current capital gains tax rules that tax the property as a trade – allowing them to defer tax if they reinvest in another business or pay only 10% capital gains tax – they will have to sell it before 6 April 2010.

Harrup added:

“Thousands of people – from those owning one chalet to individuals running large holiday businesses – now face some tricky long term decisions at a time when they should be concentrating on preparing for the holiday season and I fear that many owners will try to sell quickly. If this leads to a reduction in the number of tourists visiting UK holiday areas, it will hurt the wider UK tourist industry - one of the few sectors of the economy that had looked set to avoid the recession!"

“The government needs to rethink this policy quickly to avoid causing collateral damage to the UK tourist industry,” he concluded.

Recommended