Farmers who lease out cottages or other farm buildings as Furnished Holiday Lettings (FHL) may have to change the way they operate or risk losing valuable tax reliefs, says an agriculture specialist at the UK200Group of independent lawyer and chartered accountancy firms
Andrew Heskin, a partner at Lincolnshire accountants Moore Thompson, says government proposals mean that the tax relief regime for FHL owners in the UK is set to get tougher. The planned changes have become necessary to bring the UK into line with EU law.
Currently, provided the accommodation is run on a commercial basis – rather than as what HM Revenue & Customs might consider a hobby or is let only to family and friends – FHL relief allows owners to treat their holiday homes as a trade rather than an investment.
Andrew said: "This qualifies them for loss relief against general income, capital allowances on plant and machinery, and certain capital gains tax reliefs.
"Losses can be set against the owner’s total income, not just their lettings business, for the current or previous tax year. For the first four years of the business’s operation, losses can be carried back up to three tax years – potentially to income received before the business was started.
"Now, however, we are waiting the outcome of consultation on coalition government proposals which would mean that to qualify as a holiday home and receive the associated tax breaks, properties will need to be available for 210 and 150 days respectively, rather than 140 and 70 as at present.
"The proposals would also mean that losses made by a qualifying furnished holiday lettings business may in future only be set against income from that business, not general income from elsewhere."
The consultation has now closed and the government has said it will publish its response by the end of this year, with any changes likely to be implemented in the 2011 Budget.
Andrew added: "With the new tax treatment planned to take effect from April 2011, FHL owners may need to review their position before the changes are introduced."
