Little known tax allowance could save holiday home owners thousands

Owners of furnished holiday lets are set to miss out on tax allowances worth thousands if they do not make their claim before the end of the tax year, an expert has pointed out.

Little known tax legislation allows owners of furnished holiday lets, which meet criteria laid down by the Inland Revenue, to offset ‘Capital Allowances’ against their total income from salary and dividends paid in the UK, as well as rental income, according to John Davies, managing director of Hedge Tax Mitigation, niche property tax specialists.

But unless the claim is made before 5 April 2011, the window of opportunity may be shut forever as the Government is thought to be planning to end the ability to offset these tax allowances against income earned in the UK.

Davies estimates that over 97% of holiday home owners are unaware of these tax allowances, due to the specialist nature of this area of property taxation, and that millions of pounds remains unclaimed.

International payment specialist, Smart Currency Exchange has experienced a 50% increase in the value and volume of euro funds being repatriated back to the UK over the last 12 months and expects this to steadily increase as expats continue to return to the country from the eurozone. The tax benefit could make all the difference to the many owners struggling to keep their homes due to the weak pound and lower occupancy rates.

‘It is possible that between 20 and 30% of the purchase price of a property could be claimed as Capital Allowances, which on a property bought for £250,000, could mean a tax saving of £15,000 to £37,500.  These are large sums and the owner has an entitlement to claim them,’ he explained.

‘In these austere times as the government looks to raise revenue, holiday homes, as well as buy to let portfolios are coming under the government spotlight. Irrespective of when they bought their property, owners need to stake their claim now before the legislation changes, or this money, which is rightfully theirs, will be lost forever,’ he added.

The legislation allows owners to claim tax allowances against items such as electrical cabling, kitchen fixtures and fittings, plumbing, air conditioning, and many other items integrated into the fabric of the building, which will not have been claimed for by their accountant.

Claiming Capital Allowances is a specialist area, involving surveying as well as knowledge of this particular part of taxation law. As there are penalties imposed on accountants for inaccurate claims, most accountants will not prepare capital allowance claims, but are happy to use specialists such as Hedge Tax Mitigation to provide the documentation necessary to make a claim.

It is estimated that over two million British tax payers own holiday homes in the UK and overseas, with the estimated value of British owned properties in the eurozone currently considered to be around £47.5 billion.

Rental incomes have been steadily falling as the economic slowdown sees saw fewer people taking vacations abroad. In addition, the weak pound has meant UK based owners of overseas holiday homes have had to convert significantly more sterling in order to cover mortgage payments and other property maintenance costs and taxes.

To qualify as FHLs, holiday homes must be furnished and situated in the UK or the European Economic Area (EEA). They must also be available for letting to the public as holiday accommodation for at least 140 days a year and actually let for at least 70 of these at market rate. Once a claim is made, it can be used to claim back tax already paid or to reduce tax due in future years.