Holiday Lets and the UK Tax Relief

During the early 1980s, people were encouraged to buy a second home in order to holiday let. Capital gains and inheritance tax incentives made the idea attractive and lucrative. Recently, though, British Chancellor of the Exchequer, Alistair Darling, proposed the axing of capital gains tax relief on holiday lets. Come April 2010, they will become classed the same as any other property investment. The proposal was sneaked into the budget and is causing widespread anguish among those who will be affected.

Tax Relief is Axed

Buying a second home with the idea to holiday let, allowed the capital gains tax rate to be assessed in the same 10% bracket that entrepreneurs enjoyed, as opposed to the normal 18%. The move to scrap the incentives has caused uproar with holiday-home owners, who rely on the income from their holiday lettings. With the widespread economic problems and falling house prices, this is not exactly the kind of news that people were expecting or hoping to hear.

The Old Rules

For a property to be deemed an official holiday let, it must be fully furnished and available to be rented to a holidaymaker for at least 140 days per year, and physically let for 70 days per year. The property must be rented to bona fide tourists and holidaymakers, with friends and family not qualifying. An attractive incentive included bypassing inheritance tax if the holiday let was available for short-term rentals, and if the owner was playing a vital role in the activities of holidaymakers.

British Tourism on the Rocks

The old rules encouraged people to actively take an interest in the British tourist industry, making a big difference and playing an influential role in the overall mechanics of local tourism. As more people look overseas for their holidays, you would think the government would want to attract more tourism to British resort towns and villages to stimulate local economies, especially given the bleak downturn we are currently experiencing. Holiday let prices are set to increase, in order for owners to cover the extra taxes they assumed would never have to pay. People do not have much money to spend on holidays at this moment, so dramatically raising the prices on holiday home rentals is a backwards step for homeowners and those who make a living from the British tourist industry.