Is anyone else concerned about the tax changes?

[apexblue]

www.tourismalliance.com/attach.pl/240/2 ... final).pdf

Is anyone leaving the holiday lets business because of this?

My MP has voted against it for what's it worth.

[harcourtv57]

We are not leaving the business but are certainly not happy about it. We have just let out one of our holiday rental properties to a long term tenant and may well have to rethink the others as well - although perversely this has been our best year so far, in spite of the economic climate! We didn't start up holiday lets because of the tax 'perks', we fell into it by accident (another story), and only discovered the tax differences later - but as we both work in 'day jobs' as well, the attraction of long term tenants in our properties, with no changeovers etc etc is clear. BUt we love doing holiday lets . . .

[Nightowl]

Does anyone know whether these tax changes are definitely going ahead or if there are any concessions being made?

I still can't fully get my head around what the ramifications are. I understand that if one is buying a new rental (which we are thinking about) then capital costs for sprucing it up ready for the market, plus furnishing it, are not allowable in the same way as before. But I'm not sure I understand how they will now be treated. Before, we could offset all these costs in the first year of trading, and if a loss was made, it could be offset against any other earned income.

If we buy something before April 5 2010 and fit it out before then, I'm assuming we'd still qualify for the FHL tax regime but after that is it subject to the 10% writing down rules? And what about running costs, replacing bed linen, paying for cleaning and changeover costs, and all the other running costs involved, which are much more than a normal SAT?

Can we still offset those against tax or not? I can't find much information which sets out exactly what is offsettable against tax and what isn't after April 2010. Shorthold Assured Tenancies dont incur the same sort of costs as holiday rentals.

Whether we buy a new rental property or not, we'll still be running the other ones and I'm really confused about what the tax allowance situation will be next year.

[apexblue]

Dear All



As you may be aware, there have been ongoing discussions with H M Revenue & Customs (HMRC) in Whitehall and also with H M Treasury (HMT) regarding the proposed changes to the rules on furnished holiday letting. The professional accountancy and tax bodies are making a submission regarding the implications of these tax changes and I know that various other industry bodies have been in contact with HMT/HMRC and those discussions are also ongoing.



There is expected to be a full announcement at the time of the Pre-Budget Report which should include details as to the proposed changes and the transitional rules. I intend to send an email around as soon after the Pre-Budget Report as possible with our considered thoughts on whatever is announced at that point in time.



The date of the Pre-Budget Report is not yet known, but I thought I would send this email at this point just to update you on my proposed course of action.



Regards



John Endacott







Fiona Watt

Secretary

This email was sent for and on behalf of Winter Rule LLP

[harcourtv57]

We have today returned from a few days away to find a letter from Stephen Timms, HM Treasury, sent on to us from our MP. Its a two page letter so too long to repeat here, in response to his enquiry on our behalf. Basically in that two pages it just tells us what we already knew, i.e. what the reason for the changes are (not compliant with European law), what the changes mean and thanks us for 'taking the trouble to raise our concerns' Mr Timms says that 'the government supports the objective of a thriving UK tourism industry but doubts that a distortion to the tax system is the best way of promoting it' - goes on to say that it will not affect hotels or B&B (I know ) as these are seen as business trading activities. However,those who let caravans are exempt as is anyone who lets holiday cottages and offers additional services such as meal or laundry facilities 'where some or all of the activity may amount to a trade'. This is no help to us at all but does it mean that if we offered laundry facilities or meals to our guests we would be exempt?? Also no mention anywhere of the capital gains tax changes which would particularly affect us as we bought all our properties as run down and did them up to a high standard and equipped them as holiday lets.

[DivineMrsM]

How can a holiday cottage/vacation rental NOT be seen as a trade?? We invest money in it, we advertise it, we pay accountants, taxes, cleaners, etc.... How on earth does washing people's undies and cooking their dinners make a difference??

So if I provide a welcome basket and don't charge extra for cleaning...will I be exempt??

Like many holiday rental owners, I have gone to great financial lengths to purchase my property. It is NOT an occasional holiday home for my family (it's on my street for goodness sake!) and is purely a business.

Pah.....

[harcourtv57]

Couldn't agree more! Ours is definitely a business and bloody hard work at that! Its not a second home that we let out for extra income, we have three properties and it really annoys me that we will now be classed under the same tax rules as landlords who just let out to long term tenants rather than as a business.

[Windy]

It is absolute lunacy to suggest that running 3 holiday lodges (as I do) has any serious relationship with the business of letting a second property on an assured short hold tenancy. I know as I have done that too.

One of these takes hours of work a week, results in employment of local people, pumps money into the local area etc etc.

The other just meant advertising once every year or so in the Evening News and then watching the rent cheques roll in once a month.

This is just a sour grapes reaction to the fact that they had to accept that people in Europe had the same rights as in the UK, to which their reaction was "OK let's stuff the people in the UK and thenyou can all be as equal as you like".

Tw*ts!!!

And no I am not getting out of the market because, to put it simply, I can't afford to - I bought these lodges as the basis of a long term business and selling now, at the bottom of the market would cost me thousands.

In case anyone is interested in the reply from Stephen Tims I got what is probably the same letter forwarded to me by my MP Michael Jack

This shows fairly conclusively that they don't have a clue.

Thank you for your letter of 7 May enclosing correspondence from your constituent, Mr
John Hobson, about the proposal to repeal the furnished holiday lettings legislation.

Mr Hobson is concerned that the measures being proposed will have a damaging effect on his family's personal finances.

It may be helpful if I give some background to the Budget announcement made on 22 April. In general, the letting of property is treated as a property investment business and not as a trade. As your constituent will know, landlords are normally taxed on their rental income under the property income rules. However, under the furnished holiday lettings
(FHL) rules, landlords of furnished holiday properties in the UK can, subject to certain qualifying conditions, obtain some of the more favourable tax treatments available to traders (such as more flexible loss relief and capital allowances).

Landlords with income from furnished holiday accommodation elsewhere in the European Economic Area (EEA) did not qualify for the special treatment available to landlords with furnished holiday accommodation in the UK. They were treated instead in the same way as landlords of other types of overseas property, under the property income rules. This difference may not be compliant with European law. The Government had to choose whether to extend the preferential tax -treatment to those who invest in European FHL- properties, or withdraw the FHL rules.

In addition to the European considerations, the FHL rules provide an anomalous tax treatment and are seen as discriminatory and unfair to other types of landlord. In particular, some residential landlords provide similar services and undertake similar activities to some FHL landlords but are unable to benefit from the preferential tax treatment available to all FHL landlords.

We have therefore decided to repeal the FHL rules from 6 April 2010 for income tax and capital gains tax purposes, and from 1 April 2010 for corporation tax purposes.

The decision was taken to announce this withdrawal at Budget 2009, in order to provide a period of notice to those affected, and thus allow them time to plan for the change in tax
treatment.

Once the rules are repealed, those who let furnished holiday accommodation will be taxed in the same way as other landlords, under the property income rules. There are still reliefs available under the property income rules. For example they may still claim business expenses such as mortgage interest, business rates, heating, lighting, and wages for those they employ, as a deduction when they compute their taxable income from the property, in the same way as they do now.

Although capital allowances will not be available for plant and machinery used within the FHL property once the FHL rules are repealed, the landlord will be able to claim the wear and tear allowance instead. The wear and tear allowance is a deductionof 10% of net rents to cover the costs of renewing furniture or furnishings in let residential property. The Landlord's Energy Savings Allowance will also be available for capital expenditure on certain energy saving items.

Whilst the repeal of the FHL rules will change the way in which FHL losses can be used, loss relief will still be available. Individuals will be able to set their FHL losses against other property income in the year or future years, and companies will set their losses against other income in the year or future years.

Further information on the property income rules can be found on HM Revenue & Customs (HMRC) website at: www.hmrc.gov.uk/manuals/pimmanual/Index.htm.

The repeal will reduce the maximum tax relief available for pension contributions, and will remove the additional capital gains reliefs that are currently available to the owners of FHL
properties; however this will bring the tax treatment of FHL landlords into line with the tax treatment of other types of landlord.

One of the main features of the UK tax system is that property income, trading income, employment income, investment income and capital gains are all treated differently. Those
who let out furnished holiday accommodation are running a property business, and the repeal of the FHL rules will put such businesses on the same footing as any other property
business.

Where a landlord provides services over and above those normally provided by a landlord, some or all of the activity may amount to a trade. This may apply in the case of a holiday
complex consisting of self catering accommodation with additional on-site services for example a bar / restaurant, sports facilities and laundry. HMRC have published guidance on
this point at:

www.hmrc.gov.uk/manuals/pimmanual/PIM4300.htm.

Please pass on my thanks to Mr Hobson for taking the trouble to raise his concerns about this with us.

STEPHEN TIMMS

[Nightowl]

I just wonder sometimes if the overseas regime for taxation on holiday lets IS as tough as the UK are now proposing and whether it really DOES bring the UK into line with the tax regimes that our friends on this forum in other countries are experiencing.

So, those of you that live in France and rent in France and are subject to French taxation laws rather than UK ones, does the new regime as laid out in the letter look tough to you or is it just the way it's always been for you? Have those of us in the UK really been party to a generous 'special deal' that no one else got?

I'm just trying to get my head around the fact that if the proposed regime is the way it really is and always has been done in other countries and those of you living there can still make a living from it, then those of us in the UK might still find we can too.

But if it the proposed changes are tougher than elsewhere, then they are NOT bringing us in line with Europe, they are just bringing us in line with UK shorthold lettings, using 'parity with europe' as an excuse.

[Hells Bells]

I remember at first, that it seemed a little unfair that UK owners had the advantages they did, and I didn't. Particularly being able to offset losses against other earnings. I had a small UK business at the time, and I wasn't allowed to do it with that, so did think it unfair. I actually wondered at the time if it was against EU law, but not being an expert, just shrugged it off. Since then, I haven't really given it much thought, just filled in my tax returns.

[Windy]

I'm just trying to get my head around the fact that if the proposed regime is the way it really is and always has been done in other countries and those of you living there can still make a living from it, then those of us in the UK might still find we can too.

It's not so much a question of whether we can make a living out of it - we probably can - it's a question of whether the government is morally or legally right to move the goalposts in this way.

Buying a holiday home is a long term investment and changing such significant rules without due consultation, just so they don't have to allow non UK domiciled people to claim allowances, is quite simply wrong.

This is NOTHING to do with harmonising the treatment of residential landlords and holiday let landlords.

It has EVERYTHING to do with limiting allowances paid to EU domiciled people due to what they now realise they would have to do under EEC law. Before that happened there was no talk about FHL and residential landlords being the same beast.

They just happen to have found a fig leaf in the excuse they are using here, but their naked greed and opportunism is still rather evident behind that rather thin piece of greenery!

[harcourtv57]

Absolutely right Windy - and thanks BTW for the text of the letter from Mr Tiimms, as you suspected its a standard reply. Particularly agree with you about moving the goalposts - we could not make a living from it, which is why we both still have other jobs - but we set it up as a business venture on a lot of borrowed money with the eventual aim of making a living from it. We have worked damn hard over the past three years, doing up, equipping and letting out properties, to find that they have changed the rules - which will affect us, not least because OH is self employed and in the current climate is not getting work like he used to, so cannot offset any losses as previously he was able to. But its the principle as much as anything and the suggestion that its anything like ordinary property rental - ordinary landlords don't spend every weekend (and often weekdays as well), every evening dealing with enquiries and advertising, dealing with guests, maintaining properties and contents etc etc etc

[Nightowl]

Don't get me wrong, I agree with both of you.

We've done exactly the same thing, sunk a lot of money, time and effort into our London rentals specifically because of the tax rules at the time, only to find the rug whipped out from under our feet. We were hoping to buy another one and get to a stage where we could 'give up the day job'. So for us, to some extent, its irrelevant whether we are treated the same as the EU, those were the rules in the UK at the time and we based our business on those rules. [ooh I sound like an MP now]

Prior to running holiday lets, we ran the same flats as SAT tenancies. There wasn't nearly so much work involved, and of course, less allowances and less profit.

To run the holiday lets, we put in a huge amount of time and effort. The profit we make now is very much in line with that extra amount of work we now have to put in to the venture.

And we feel very hard done by that it was a sudden and sweeping decision.

But I was just interested to know whether everyone else out there in the same business overseas was feeling that they never got those allowances in the first place, so what's our problem. [the excuse we are given for repealing the FHL rules being that EU countries don't have these generous allowances].

Or whether overseas they DO get allowances over and above the allowances we'd get on the basis of SAT lettings [as detailed in mr timms' letter] and the 'parity with the eu' is a load of old bullsh*t.

[harcourtv57]

Absolutely Nightowl - and thats the whole point - those in the EU set up their businesses under EU regs whilst we did not. And it would never have occurred to me to worry about what allowances or otherwise were applicable in other countries when my business is based in this one.

[greenbarn]

I'm not sure how many of our esteemed Masters and Lawmakers take self-catering holidays in the UK. I suspect that the number is on the low side of low, hence there is little understanding of what we see as our business.

What they probably envisage is a cosy little setup typified by the notion of old Mrs Arbuthnot making a few bob on the side by calling the shack in her field a holiday cottage, or Mr and Mrs Smug who decided to cash in on the property boom (remember that?) by buying a property and letting it as holiday accommodation until such time as they could make a killing on the increased property value. In the eyes of Them, there is no difference between the actions of Mr and Mrs Smug and Mr Van Highstreet who owns vast amounts of rental property, they are both making easy dosh out of property.

Ergo they are both landlords.

For our part, we bought a house with a large stone barn for which planning consent was granted for conversion into three holiday lets. The planning specifically denies the use of the resulting three units as dwellings, only as holiday lets. The barn may not be sold separately from the house. The building regulations applied to the conversion were those for a commercial property. We market the properties, we deal with enquiries, we clean and maintain, we look after our guests - you know all of this stuff.

So which part of the above is not a holiday business?

This is just our own example, although the restrictions on what we can do with our property makes it an interesting one. If you like, it means we have no choice other than to run it as a business - which is what we want to do anyway - others may buy property and choose to run it as a holiday let, or simply as a long-term let. If they choose to run it as a holiday let, the fact that there's an easier alternative in the form of long lets doesn't make the holiday let any less of a business.

Maybe I'm just being thick. To help us all to accept what is best for us (which must be the case, or our Carers wouldn't impose it), there is a new mantra which we all must chant daily. It goes like this:

"We are all Landlords. We are all Landlords. We are all Landlords. We are ...............................