OWNERS of overseas holiday properties have been given a window of opportunity in which to claim valuable tax perks.

In the 2009 Budget the Chancellor announced that the tax treatment of qualifying furnished holiday lettings (FHL) is to be extended to all properties in the European Economic Area until 2010. After that date this treatment will be abolished for all properties, whether in the UK or elsewhere, and so clearly this represents an opportunity for owners of qualifying foreign property.

Property qualifies as an FHL if it is available for holiday letting on a commercial basis for at least 140 days a year, and is actually let commercially for at least 70 days in a twelve month period. It must not be let continuously to the same person for more than 31 days in a seven month period.

The extension of the rules means that owners of qualifying properties will be treated for UK tax purposes in exactly the same way as those who own qualifying properties in the UK, and gives owners the chance to claim capital allowances and loss relief against other income or capital gains.

It also means that UK taxpayers who have sold overseas properties in recent years may be able to claim reliefs such as business asset rollover relief. This is where the gain arising on the disposal of a property may be rolled over into the acquisition of a new qualifying property or other business asset if the new property is acquired within three years of the disposal of the old one.

Assuming that the property qualifies as a FHL, it should be possible to offset any losses arising on the foreign property against general UK tax liabilities, but only up to 6 April 2010. The earliest year which can be opened up to claim FHL tax treatment is 2006/07 or, for corporation tax, accounting periods ending on or after 31 December 2006. However the deadline for lodging an amendment to the 2006/07 tax returns expires on 31 July, so prompt action is necessary.

Other tax reliefs which may be claimed include relief for pension fund contributions, entrepreneurs’ relief (which means that on sale any UK capital gains tax will be limited to 10 per cent on the first £1 million of gains), loss relief carried forward to set against future profits, and terminal loss relief where losses on termination of the trade may be carried back to set off against profits up to three years earlier. Unfortunately, if the foreign property would not qualify as an FHL, it will not be possible to offset any losses arising against general UK tax liabilities, or indeed to claim many of their reliefs referred to above.

Professional advice should be taken however, especially where the ownership has been structured through a foreign company.

Ronnie Ludwig is a Partner in the Private Wealth Group at Saffery Champness.

This article first appeared in The Scotsman