Proposals announced recently by the Government on the likely changes to tax rules on furnished holiday lets (FHL) will also apply to the owners of properties in the European Economic Area if they are UK tax payers, according to accountants James Cowper.

The changes being proposed for April 2011 would bring the taxation of FHL into line with EU law, whilst at the same time limiting the effect on the holiday industry, and include:

- An increase in the number of days a property needs to be let before it can qualify as a FHL. This will restrict the extent that owners will be able to use their second home and still retain the tax breaks.

- Removing the ability to offset expenses against other income. For many this will increase the cost of running their second home.

Stephen Barratt, private client director at James Cowper, said: “Currently a property only has to be let for 70 days and be available for 140 days to qualify for tax breaks under the FHL rules. These had been due to be scrapped from April 2010 but were saved in the Emergency budget on 22 June. If the current proposals are implemented, the tax breaks will be restricted or removed altogether as the letting requirements rise to 105 and 210 days respectively.

“Many in the industry think this is a way of penalising second home owners and it could force many to choose to sell their properties ahead of the April 2011 rule change. If many people come to the same conclusion then this could see a glut of properties on the market in holiday home hotspots both in the UK and overseas.”