The dream of owning a holiday home in the country or by the sea is likely to look considerably less attractive as the Government begins to crack down on the tax advantages of owning furnished holiday lets.

In the emergency Budget in June, the previous Government’s decision to remove major tax benefits of owning furnished holiday lets was removed, to the relief of many.

But last month the coalition Government announced its own measures to ensure tax benefits are not abused by proposing a dramatic increase in the number of days a home must be let to qualify.

At present, a property only has to be available for letting for 140 days and actually let for just 70 days in any given year before the owner qualifies for beneficial tax treatment, including: n The ability to offset excess property expenses, including mortgage interest, against other income at the landlord’s highest rate of income tax n A Capital Gains Tax (CGT) rate of just ten per cent on profits realised on the sale of the property n The ability to defer CGT by reinvesting into new qualifying property and to make gifts within the family without a CGT charge.

Stephen Barratt, private client director at James Cowper said: “The current conditions are not particularly onerous and the benefits considered generous, leaving the holiday home free to be enjoyed by its owners, family and friends for a large part of the year.

“In its consultation document, the Government is suggesting a holiday home must now be available for letting for 210 days and actually be let for 105 days, restricting the amount of time the owner can use their property and increasing the occupation by the paying public.

“And, in a double blow, the consultation, which ends on October 22, is also recommending that the option to offset expenses incurred in the running of the holiday home against other general income be removed altogether.”

The consultation also covers holiday homes owned by UK tax payers across the 30 countries in the European Economic Area and some of the most popular holiday destinations, including Spain, Italy and France.

Mr Barratt said: “It is just consultation and so there is still an element of having to wait and see what the final rules might be, but change does seem to be in the air and, if implemented, will impact the affordability for those owning or looking to buy a holiday home.”

Experts believe that if the changes outlined in the consultation document are adopted, many holiday home owners will choose to sell up in advance of the April 2011 implementation date.

Mr Barratt added: “If a significant number of holiday home owners come to the same conclusion we may see a glut of properties come onto the market in holiday hotspots both in the UK and overseas.”

The Treasury suggests there are about 65,000 furnished holiday homes that could fall foul of the proposed changes.

Mr Barratt said: “The preferential CGT rate of just ten per cent on the sale of furnished holiday lets, compared with the usual rates of 18 per cent and 28 per cent, is also likely to play a big part in any decision to sell.

“There might also be an element of main residence relief in the case of a second home where the necessary tax election has been made, though this is not affected by the proposals.

“Depending upon the scale of the business and the timing of the sale, it might be that a sale after April 5 2011 will still qualify for the ten per cent tax rate, but the rules are complex and so those looking to hold on to the property beyond that date but still benefit from this favourable rate should seek advice.”

Contact: James Cowper 01865 200500. www.jamescowper.co.uk