We mentioned the new restrictions in the September 2010 edition of Tax E-News, and now it has been decided to delay most of them until 6 April 2012 instead of introducing them from 6 April 2011.
Specifically, the advantageous tax regime is only likely to apply from 6 April 2012 if the property in the EEA is available to let for at least 210 days (30 weeks) in the tax year and is actually let for at least 105 days (15 weeks). The latter requirement may well be fine for a property in France, Spain or Portugal, but you could struggle to let a property in the UK for that number of weeks given the vagaries of our climate.
A concession may help if you own more than one holiday lettings property. Then, if the 210 days availability test is not met for each property there is an averaging election which can be made between the properties (but keeping UK properties separate from EEA properties)
Another concession is where the 105 day condition is met from 2012/13 for a specific tax year, in which case an election can be made to treat the property as continuing to qualify for the next 2 years – but not if the averaging election above is in place.
Where the timing has not changed is where you are unfortunate enough to make a loss on the lettings. From 6 April 2011 (not 2012) the loss cannot be set against your other income and instead it has to be carried forward to set against future profits – or profits from other property lettings in some cases.
We will always be mindful of the possibility that even if your lettings pattern falls short of the above new rules, we may be able to argue that given the level and extent of the services you provide to the holidaymakers, the lettings are a trade in the normal meaning of that magical word. Then, the advantageous tax regime will still apply whatever the number of days that the property is let.