Pre-budget report hits UK holiday home owners

Pre-budget report hits UK holiday home ownersThe Chancellor’s Pre-Budget report has hit holiday home owners. UK property investors who rent out their holiday home in the UK will no longer be able to offset the costs of that property against their tax bill.

The new rules look set to be introduced next April and will stop property investors with second homes from being able to write-off their mortgage interest and other maintenance bills as a business loss. Investors will also not quality for capital gains tax (CGT) relief, hitting those who will look to buy a new holiday home from the proceeds of other property sales.

Old rules state that if rental income did not meet costs (i.e. mortgage interest and maintenance costs on the property) on holiday lets, the losses could be used to reduce the amount of tax payable on the rest of the investor’s income. However from April 2010, second homes will be treated as a fully-fledged business i.e. as buy-to-lets as professional landlords.

The news is not all bad though. By switching to the buy-to-let business type, different taxes are applicable. For example they will now be able to claim a ten percent deduction for wear and tear on furnishings within the property and the property may qualify for things such as energy saving allowances.

It is important to note that the new rules will only affect UK property investors who have holiday homes in the UK. Foreign property investment is not yet affected thanks to European rules introduced earlier this year, thus foreign property investors will still be able to claim the old tax breaks.

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  1. Tony - UK Caravan Holiday Home Owner | Nov 4, 2010 | Reply

    I think this has changed now with the new government & recent budget? We own a holiday caravan and rent it out and this has always been allowed as a cost in the past, adjusting for personal use etc – a bit complex but a decent accountant can work it out OK!!

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