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Holiday Home Tax Grab

AUTHOR: Matthew Gilligan
Managing Director and Property Services Partner

POSTED: 25 September 2012

Draft legislation reflecting the Government's desire to reduce tax benefits in respect of mixed use assets has now been released. Mixed use assets are assets that are used for both private and business purposes with holiday homes being perhaps the best example of this. The rules are proposed to apply from 1 April 2013.

Unsurprisingly, the rules seek to limit the amount of expenditure that can be claimed for tax purposes in relation to assets that are used for both private and business purposes. At present it is arguable that expenditure can be claimed in relation to a holiday home for periods that the home is not actually let to third parties but available for rent - particularly if there is genuine effort made to seek an occupant and it is not used privately. For example, a holiday home that is used for say 30 days privately but otherwise available for rent gives rise to an argument that 11/12^ths of the expenditure is deductible.

The proposed new rules reduce this significantly. Whilst we don't class that as a great surprise, we are surprised by the complexity of the new rules which apply different tests depending on whether the property is owned in a company (with more complex and onerous results where it is) and a ring-fencing rule that ring-fences off tax losses that are produced by mixed use assets from being able to be offset against other taxable income in certain circumstances. In other words, if a holiday home still produces a tax loss even after the application of the new more restrictive rules in relation to claiming the expenses, there is a prospect of that loss not being able to be offset against other taxable income. This is at odds with the Government's position in recent years that ring-fencing of tax losses from rental properties is undesirable because of the complexity that it gives rise to and presumably the desire to ensure that losses from one form of investment are not treated any differently from another. This ring-fencing of losses in the context of holiday homes may just be an isolated tax grab by the Government, or could it be the thin end of the wedge?

In summary, if you have a mixed use asset, whether it be a holiday home, boat, plane etc, contact us at GRA to discuss how the new rules may impact you. As already noted, bear in mind that the legislation is at draft stage only at this point with application not expected until 1 April 2013.

Request a Meeting

Matthew Gilligan
Managing Director and Property Services Partner

09 522-7955

[email protected]

© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

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