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Wash up tax drops: Good news for cider drinkers and holiday lettings

12th Apr 2010
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There’s been a repeal of the tax on cider and the rules in relation to furnished holiday lettings. Simon Sweetman takes a look at what could be next for these two controversial measures.

In the West Country they tell me there is dancing in the streets. Not only has the increase in tax on cider been averted, but so too have the changes to the furnished holiday lettings rules. Let joy be unconfined - or perhaps not.

The increase in the tax on cider seemed strange because the duty had deliberately been kept low to encourage British producers. Cider has had a mixed reputational history in recent years. Twenty years ago an Ipswich town centre food shop that wanted a licence to sell local Suffolk ciders had problems because the magistrates saw cider only as the drink of preference for derelicts on park benches.

Nowadays we have a great variety of real ciders, but at the same time there’s been a great push behind the totally disgusting Magners and its like – with companies trying to repackage cider as a drink for the ‘yoof’. Quite which of these images occurred to Mr Darling I don’t know (or whether it’s simply that the increase in cider consumption makes a tax increase more attractive to the Treasury), either way it seems unlikely that the government regarded it as a big deal and was probably quite happy to let it go.

The removal of the furnished holiday lettings rules is another matter, because this cannot just drift. It seems clear that in their present form they are untenable, and that favouring the owners of holiday property in the UK over those in the rest of the EEA is a breach of European rules. Therefore the FHL rules either have to go or to be expanded to cover the rest. This is one of those situations where it is hard to see what makes most sense. The FHL rules are complicated and date from a time when the taxation of ordinary income from property was disadvantaged when compared with income from trading. At that time, extending them to properties across the EEA would have destroyed their supposed rationale, which was to encourage the UK holiday industry.

The trouble is that an abolition of the rules would lead us into a situation which is just as complicated, in that the owners of FHL properties will need to know whether they will be taxed as traders or as rentiers. Some will want to be traders (mainly for the capital gains advantages), while others may prefer rental status because there will be no Class 4 NIC.

In most cases HMRC says that the correct approach is to assess it as rental income. HMRC is going to issue revised guidelines here on matters such as how to identify exactly what a dwelling house is (because you cannot claim capital allowances where the plant is in a dwelling house). However, any sense of urgency is likely to be dissipated by the postponement. This will refer a great deal to the case of Griffiths v Jackson and argue that for a trade, the taxpayer (not the guests or the tenants) must be in occupation of the land. It will also throw the status of caravan sites into further confusion.

Here’s hoping that the delay gives the government a proper chance to review the whole question in the 21st century.


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Nigel Harris
By Nigel Harris
12th Apr 2010 12:21

Furnished hol lettings - what about 2010-11?

Yes there's certainly much merriment down in Somerset at the loss of the higher tax on cider. We have a big cider producer in the town here, so local fears of job cuts have been allayed  -for the time being at least.

I know we can't guess what the next government will do, but where are we right now on FHLs? I have read elsewhere that the FHL regime would have to be repealed at the beginning of a tax year, which implies that it will remain for 2010-11 - is that correct? Is there anything to stop a re-elected Labour government from simply reinstating the proposal wef 6 April 2010 (apart from the Tories, of course!) or will my FHL clients be able to claim their letting losses against other income for another year?

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