Recent government proposals on changes to the tax rules on furnished holiday lets (FHL) will also apply to the owners of properties in the European Economic Area if they are UK tax payers, accountants James Cowper has warned.

The changes proposed for April 2011 bring the taxation of FHL into line with EU law, whilst at the same time limiting the effect on the holiday industry, and include an increase in the number of days a property needs to be let before it can qualify as a FHL. This will restrict the extent that owners will be able to use their second home and still retain the tax breaks. The changes also include the removal of the ability to offset expenses against other income. For many this will increase the cost of running their second home.

The EEA includes the following countries: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Republic of Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, The Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and UK.

Stephen Barratt, private client director at James Cowper, said: “Currently a property only has to be let for 70 days and be available for 140 days to qualify for tax breaks under the FHL rules. These had been due to be scrapped from April 2010 but were saved in the Emergency budget on 22 June. If the current proposals are implemented