PKF: Holiday home buyers need to know the new tax facts

5 September 2011: With fond memories of an enjoyable break in the sun still fresh in their minds, now is the time when many British holidaymakers start thinking about realising their dream of purchasing a holiday home somewhere warmer and sunnier. However, PKF Accountants & business advisers warn that it is important to consider the tax implications before taking the plunge.

Owners of holiday homes in the UK or other European Economic Area countries who let their properties for at least part of the year have been able to claim special tax reliefs for several years. But changes to the ‘furnished holiday letting’ (FHL) rules introduced earlier this year have made it more difficult for properties to qualify for the tax breaks.

Patrick Harrison, tax partner at PKF says: “The qualifying rules for an FHL have become tougher since April 2011. To meet the new criteria, the property must be available for commercial letting as holiday accommodation for 210 days a year, compared to 140 days previously, and actually let for 105 days, previously 70 days.

“Potential FHL owners who may struggle to meet the thresholds should decide if the purchase is for personal use or an investment, or take active steps to ensure that the property is available and actually let for the appropriate periods.

“FHL owners will be entitled to tax relief on interest paid on the mortgage, whereas those who retain properties purely for personal use or as an investment will not.

“The stricter letting thresholds must also be met in order for any subsequent sale of the property to qualify for capital gains tax reliefs. This can make a significant financial difference to the property owner as they will be able claim ‘rollover relief’ if they reinvest the proceeds and potentially entrepreneurs’ relief, which will reduce the tax on the gain from 28% to 10%, if they don’t.”

“Although buying a holiday home might seem like the ideal investment when you’ve just got back from an enjoyable break in the sun, it is worth seeking some tax advice on the basics before moving ahead.”