Tax breaks up for grabs for UK property owners in Tenerife
Owners of second homes in Europe including Tenerife, may be able to benefit from some new tax exemptions – but for one year only. One of the surprise measures in the recent Budget was an extension of tax breaks on furnished holiday lettings in the UK to similar properties in the rest of Europe. The government decided to make this change because it was worried that having different treatment of holiday lets in UK and the rest of the EU was a breach of European law, but at the same time it said it would be too expensive to offer the tax breaks indefinitely, so they will be abolished altogether in April 2010.
The benefits apply to properties that meet a set of qualifying conditions, which are basically that the property must be available for letting as holiday accommodation for at least 140 days during a 12-month period; and it has to actually be let for at least 70 days, with each letting shorter than 31 days.
So what exactly are the benefits? The most attractive one is that, if you make a loss on the property once you have offset all your outgoings against your rental income, that loss can itself be offset against your other income, including your salary. So if you’re a 40 per cent taxpayer then 40 per cent of any loss is effectively recovered through a reduced tax bill. Alternatively, the loss can be carried forward and offset against future letting profits.
Another benefit is that if you have owned the property for more than 10 years, and you decide to sell it in the current tax year, you are liable for capital gains tax on only one quarter of the profit. So for the 40 per cent taxpayer, that means you are only liable for CGT at an effective rate of 10 per cent (40 per cent x 25 per cent of profit). If you were thinking of selling your property, and there’s potentially a big profit since you bought it, now is definitely the time to act. What’s even better is that the exemptions are retrospective over the last five years, so you may be able to reclaim tax already paid. This will be a surprise windfall for overseas holiday home owners, and one that could save them a significant sum in tax. A higher rate taxpayer who has been making a loss of £5,000 a year for the past five years would be entitled to reclaim £10,000, while someone who sold their property and paid £30,000 capital gains tax may now be able to claim back as much as £28,000.
On the minus side, taxes paid overseas are not affected by this, and you may find it difficult to prove that your property meets all the criteria to qualify. Your estate agent in Tenerife should be able to assist you in these matters
