UK Tax Break for Holiday Home Owners in Spain

May 12th, 2009

Many Britons who let out their second home in Spain could now be eligible for a tax rebate windfall from HM Revenue & Customs.

From 6 April, 2010, furnished holiday lets in the UK will no longer be treated as business assets, against which owners can offset losses against their other income and roll over capital gains tax to reduce their tax bill. The break was originally introduced in the 1980s as a way of encouraging British tourism.

The Government withdrew the concession after the European Union ruled that it breached EU law by discriminating against non UK owners of second homes in other European countries.

Although the most published elements of the recent Budget concentrated on tax increases, much less published is a new opportunity for owners of holiday lets in Spain, who have been given the chance to apply retrospectively for tax repayments going back up to a full five tax years. Property owners who thinks they may be eligible should act quickly, as the tax breaks will cease in April 2010.

This change in taxation is applicable where either of two circumstances has arisen:

  1. Where owners have incurred losses from the letting of the property since 6 April 2003
  2. Where a property used for holiday lets has been sold at a profit since 6 April 2003

Example 1

Mr Smith owns a Spanish villa that, apart from a couple of weeks’ private use, is let commercially throughout the year. Whilst Mr Smith tries to let the property all year round, the seasonal nature of the business means that, year on year, a loss of around £5,000 is incurred. Mr Smith may now be able to make a claim to offset this loss against UK income tax over the last five years. As a higher rate taxpayer, this would generate a tax repayment of around £10,000 (5 years x £5,000 x 40%).

Example 2

Mrs Jones acquired a holiday property in Portugal in 2001 for the equivalent of £100,000. The property was let out for five years, on a holiday-let basis, and sold in 2006 for £200,000. She paid capital gains tax in the UK of £30,000 on the sale, after all available tax reliefs. It may now be possible to go back and amend the calculation to include further reliefs, which would reduce the taxable gain to around £2,000. This would save Mrs Jones £28,000.

More than two million Britons currently own a property abroad, and a number may recently have become eligible for one of these tax breaks. Many owners who previously kept their homes for private use have been renting them out to holiday makers over the last couple of years, to generate an extra source of income during the economic downturn.

This is a one-off opportunity in the 2009/10 tax year to secure a unique tax rebate. In 2010/11 the set-off or carry back allowances which create the rebate will no longer apply. To be eligible for the allowance, properties must have been let for ten weeks a year and available to let for 140 days.

Target Chartered Accountants are offering a free tax consultation with a fee only chargeable if a successful tax refund or reduction is achieved.

Landlords who think they may be eligible and would like to take advantage of the free tax review should contact Target Accountants

Related posts:

  1. Holiday Home Bargains in Spain
  2. Spain is Europe’s Cheapest Holiday Hotspot

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