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After April 2011 the taxman will no longer fund your holiday home!

holiday cottage

The new coalition government have announced their proposed changes for furnished holiday let properties from April 2011. Just for consultation at present, but knowing the Treasury’s views on consultation it is likely to enter the statute books pretty unscathed.

The whole holiday let regime will continue – something of a relief after the Labour government tried to abolish the rules last year –  but to qualify the property will need to be available for let for 210 days ( up from 140) and actually let for 105 days ( up from 70).  For UK properties this is not too bad – roughly 80% of existing holiday let properties will continue to qualify under these new rules.

The sting in the tail is that taxpayers who make a loss on holiday letting – and over 50% of them do apparently – will no longer be able to set the loss off against other income.

So 2010/11 is the last year to mend the fence, decorate the bedrooms and replace the windows with tax relief at up to 50%.

Of course businesses continue to be able to offset losses against other income. So the interesting question is: what level of extra service do you need to provide before your loss-making holiday let morphs into a trading business? If you throw in some extra services for free to achieve that will you still be better off because of the tax relief on the overall loss?

As usual – it pays to think out of the box….