06.29.09
Canary Island Home Tax Break Cut
Thousands of UK holiday-home owners face losing a range of tax benefits under changes announced in the Budget.
From April next year, holiday property landlords will no longer be able to write off “trading” losses from second homes against their tax bill. Capital allowances and capital gains benefits will also go.
Tax experts say the move is likely to anger tens of thousands of people – many of whom based retirement plans on the current tax rules for second homes.
In a small silver lining, those owning homes within the EU, but outside the UK, will get the tax benefits currently enjoyed by owners of UK holiday homes until April 2010. However, these will then also be scrapped.
“You are going to see a very vocal, articulate section of society screaming blue murder about this,” said tax expert Anne Redston, Visiting Professor at King’s College, London.
“People have bought holiday properties and worked out their projections based on the tax rules as they exist at the moment.”
The Government withdrew the concession after the European Union ruled that it breached EU law by discriminating against non UK owners of second homes in other European countries.
Although the most published elements of the recent Budget concentrated on tax increases, much less published is the new opportunity for owners of holiday lets in Spain and the Canary Islands, who have been given the chance to apply retrospectively for tax repayments going back up to a full five tax years. Property owners who think they may be eligible should act quickly, as the tax breaks will cease in April 2010.
Currently a home qualifies as a holiday property if it is furnished, being run as a commercial business and available for rent to the public for at least 140 days per year. It must also be let for at least 70 days a year to attract the tax benefits.
HM Revenue and Customs said it was extending the tax benefit to those owning holiday homes inside the EU but outside the UK until next April because it feared it was unlawful to have the current discrepancy.
More than two million Britons currently own a property abroad, and a number may recently have become eligible for one of these tax breaks. Many owners who previously kept their homes for private use have been renting them out to holiday makers over the last couple of years, to generate an extra source of income during the economic downturn.
This is a one-off opportunity in the 2009/10 tax year to secure a unique tax rebate. In 2010/11 the set-off or carry back allowances which create the rebate will no longer apply. To be eligible for the allowance, properties must have been let for ten weeks a year and available to let for 140 days.