15:43 PM, 24th March 2011, About 10 years ago
Holiday homeowners only have a few days to splash out on a spending spree that takes advantage of a lucrative tax break.
From April 6 – the start of the new tax year – tax rules on furnished holiday lets are revamped. The special rule that lets holiday homeowners set off their rental losses against other income will be scrapped.
The tax break means that any holiday home owner splashing out on revenue costs before April 5 that push their holiday home accounts in to a loss can set that loss off in full against their other income – including salaries or self-employed income.
Revenue expenses include any expensive repairs and replacements – so if buying a £5,000 kitchen and a £1,500 bathroom would push a rental profit in to loss, now is the time to spend.
Holiday homeowners should not forget that revenue expenses do not include adding to the property – so replacing a normal worktop with granite would not count towards the tax break.
Neither would the cost of a new loft conversion, extension or garage.
Any property that qualifies as a furnished holiday let meets the tax criteria – providing its located in the European Economic Area (EEA), which is the European Union plus countries like Iceland.
Holiday homes in the UK, France, Spain, Italy and Greece all come under the rules.
Owners of permanently sited caravans and houseboats let to holidaymakers also come in the rules.
Key to claiming the losses is any purchases must be bought and paid for in full by midnight on April 5 – but they do not have to be fitted or in use.
The mechanics of the tax relief are simple. If a holiday home earns £6,000 in rents in a year and the expenses like mortgage interest, insurance and cleaning come to £4,000, taking one from the other leaves a £2,000 profit.
Deducting the £6,500 cost of the new bathroom and kitchen, leads a £4,500 loss that can go against a salary – saving up to £1,800 tax for a 40% taxpayer.
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