Currently, owners who let holiday properties can offset the cost of maintenance work, plus furniture and fittings, to cut their income tax bill under “furnished holiday letting” rules that will be dropped from April 5, 2011.
To qualify, properties must be in the UK or European Economic Area, let for 70 days a year and available for rental for 140 days. Eligible holiday home owners can deduct expenses like cleaning, repairs, agent commission, utilities, insurance and any home improvements from their rental income. If this adds up to a loss, it can be used to offset other income, including salaries.
So if annual rental income is £10,000 and expenses after, say, buying new furniture and fittings are £12,000, then the £2,000 loss can be set against income. Higher-rate taxpayers would be able to claim back 40 per cent of the loss, while basic-rate payers could claw back 20 per cent.
Owners must agree contracts before April 5, even if the work is not yet undertaken, to qualify for the last-minute tax break. After then, taxpayers will solely be able to offset holiday lettings losses against rental revenue.