New Tax Rules for Holiday Homes

Mixed-use Asset rules – 31 March 2014 year onwards

Many people are not aware that from 1 April 2013 the tax rules for mixed-use assets such as holiday homes changed.

If you have a mixed-use asset, that is an asset that is used for both private use and income earning use and it is also unused for 62 days or more in the tax year then it will be subject to the new rules.

In a property taxation context these rules clearly apply to holiday homes, however there is an exemption for holiday homes that are used for long-term rental purposes.

What Can I Claim

The expenses you can claim in relation to a holiday home have now changed and fall into three categories, fully deductible, apportioned expenses and non-deductible.

Fully Deductible

Expenses, which are incurred solely in relation to the income earning activity of the asset are still fully deductible, such as advertising for tenants for your holiday home.

Apportioned Expenses

If the expenditure relates to both income earning use and private use, it must be apportioned based on the actual time that the asset is used for income earning activities versus the time that it is used privately. In the case of holiday homes, this would be the number of days that the holiday home was rented to third parties at market rates.

In addition, if your holiday home does not earn gross income of at least 2% of it’s rateable value, you may not be able to have a deduction straightaway, instead you will be required to ‘quarantine’ the excess expenditure and carry it forward to a future year.

Non-Deductible

Expenditure that relates solely to private use of the asset is not deductible and can include things such as costs related to storing personal assets at the holiday home or local club memberships.

Whilst these rules do limit the deductions available, we can assist in maximising what tax benefits are still available from mixed-use assets such as holiday homes.

Contact us now for a no obligation discussion about how we can help you.

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