Tax advice of the week: holiday lets to lose tax break

For years, the taxman has treated UK furnished holiday lets as a business, so any losses can be used to reduce the tax on other income. It turns out, however, that the current rules are not compliant with European law and therefore, as the small print in Alistair Darling's last Budget reveals, the "special tax treatment" will end on 5 April 2010.

This tax concession doesn't just relate to losses, says Myra Butterworth in The Daily Telegraph there are other tax breaks available to reduce inheritance and capital-gains tax, which will also be withdrawn.

That's bad news, but it does at least still leave the "door ajar" for maximising tax relief. If your holiday let loses money (accountants Baker Tilly estimates that owners lose around £10,000 on average on each property every tax year), get those maintenance jobs you've been putting off done soon.

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Check your holiday let qualifies for the special tax relief first (see PIM4110 on HMRC's website) and don't confuse repair costs with improvements, which "count as capital expenditure and aren't deductible for income tax".

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