Stealth tax on holiday homes to have huge impact warn critics

The Treasury is determined to charge people who own holiday homes a stealth tax after proposing the move some time ago. More than 60,000 people will be affected by the tax that will add up to around £20 million and those objecting to the move claim that it could lead to devastating effects on tourism and small travel firms. The Furnished Holiday Letting Scheme runs their business by classing people from the UK as traders when they rent out holiday homes rather than investors, which means they pay no tax.

The homes are fully furnished and all of the accommodation is set in Britain. The homes are available for a minimum of 140 days a year and they must be rented out for at least 70 of those and owners can offset the price of furniture and the fittings against earnings. They also pay less capital gains tax if they sell the property, write-off other various losses against other incomes, include the earnings towards a pension relief and gain inheritance tax benefits.

The new changes will see that owners letting out their furnished holiday homes will have to be classed as investors and not traders and therefore they will lose all of the tax breaks that they are currently enjoying. The new laws are expected to be in place by April 2010 and the draft legislation is expected to be released in the next month. The Treasury claims that the new rules are coming into play as they seek to join in with the letting rules and regulations that are in place in other European countries.