Holiday homes

Tax changes on the horizon

Families who rent out a holiday home in the UK will no longer be able to offset the costs against their tax bill.

Rules to be introduced in April this year will stop second home owners from being able to write-off their mortgage interest and other running and maintenance expenses as a business loss. They also will not qualify for capital gains tax relief, stopping people from buying holiday homes with the proceeds of previous sales.

The old rules not only allowed those who owned holiday lets to pay no tax if the rental income did not cover their costs, they could also use their losses to reduce the amount they pay the government on the rest of their income.

From April this year, second homes will be treated as property businesses, such as buy-to-lets run by professional landlords. This means they will be subject to a different tax regime, though they will qualify for benefits such as energy savings allowances and a 10 per cent deduction for wear and tear on furnishings.

However, because of European rules introduced earlier this year those with holiday homes overseas will be able to claim the old tax breaks.