In defence of Furnished Holiday Lettings proposals

Friday, July 30th 2010 - comments (1)

A general furore has been underway in the UK since the Labour government announced the repeal of the Furnished Holiday Lettings rules, which give various tax reliefs to British owners of holiday properties in the UK. This allows owners and businesses to offset costs such as furniture, fittings, etc against their income.

The new coalition government reversed the decision to repeal relief and is now consulting the trade on proposed reforms to the tax rules, rather than a blanket repeal.

The proposals are essentially two-fold:

Qualification for tax relief would be toughened: minimum period of letting would increase from 10 to 15 weeks, and minimum period available for letting would increase from 20 to 30 weeks. Losses could also only be offset against future income from the business - NOT against other income.
Tax relief would open up to Brits who own property anywhere in the European Economic Area (EEA) who currently don't qualify. This would harmonise UK law with EU rules.

Like most problems, the best solutions often involve taking the middle ground. Faced with losing tax relief completely, it seems preferable to see the rules toughened instead.

Here's why we like the proposals:

Hobby owners need to get serious

The first reason we like these proposals is that it forces casual owners to get serious about renting their properties.

Whilst it isn't a universal truth, the general reality is that many rental properties are owned by people from outside the area. The stereotype is a city dweller, probably from London/the southeast, who funded the purchase of a holiday property through massive equity gains in a UK property bubble, fuelled by cheap credit. (And we know where that got us...)

Raising the qualification period means these owners will be forced to let their properties for longer periods to receive the tax relief. That means getting more professional and NOT leaving properties standing empty for vast swathes of the year just because it's a hobby.

Having taken a property out of the market, you should at least ensure it is occupied and generating income for local communities. It's how a real business works.

It helps re-balance rural economies

Many rural economies, particularly in the Southwest of England, have been devastated by second home ownership in small towns and villages. Affluent outsiders have raised property prices for locals and left a trail of ghost towns in off-peak periods.

It would be unfair to blame all the woes of small communities on distorted property markets - these communities are, after all, heavily subsidised by city dwellers for their local services. But if tourist accommodation is a winner, it deserves to have owners who ensure it is fully occupied by guests who pump tourist cash back into the local economy.

These proposals stimulate tourism, they don't damage it.

It's fairer for overseas home owners

By harmonising with EU rules, these proposals will finally bring overseas property owners into the system. Huge numbers of Brits bought holiday homes in Europe, particularly in France, Spain and Italy during the boom years.

Many operate in a grey area with regards to tax on their rental income. Hopefully the proposed changes will bring them into the fold and see them benefit from fair tax relief on their business costs.

We'll watch this one run although an end to this saga is hopefully in sight. Consultations will continue until October and any proposed changes will come into force from April 2011.

comments (1)

2nd August 2010 22:33 GMT |

firstgreen wrote...

Hi, I agree with 'hobby owners need to get serious' but the knock on effect could be them offering below market rates just to meet the actual let days criteria, which will cut margins for others.

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