With months to go before an end to the favourable tax regime which has helped encourage the growth in holiday home letting, experts are warning property owners against delivering "Basil Fawlty" style serviced accommodation to try and overcome the new rules. Until the 2009 budget, individuals or companies who let out property as furnished holiday accommodation were treated for tax purposes as if they were running a business with significant tax benefits, as long as they met certain simple criteria. Now that is set to change, because the UK law was out of alignment with EU legislation. There's a transitional year, where UK owners of property elsewhere in the EU can make the same claims as UK owners of UK property, but from April 2010 UK holiday home owners will have to change their business model to keep the tax benefits. That will include showing that the holiday tenants receive a much higher level of service, more like a hotel, or extra serviced facilities like swimming pools. Under the old regime that ends in April 2010, provided you satisfy certain criteria, your holiday letting will be treated as a trade or business - so losses could be offset against other income, not just the property income. The letting profits were also counted as relevant earnings for the purpose of calculating the maximum relief allowed for pension contributions. And because the property let was a trading asset, it was eligible for roll over relief - so any capital gains tax charge was deferred if you bought a replacement holiday letting property within three years of the sale. There was also hold over relief available on a gift of the property which means that any gain arising on a gift of the property can be postponed so that it effectively becomes the liability of the recipient. And plant and machinery allowances were available for capital expenditure on furniture and equipment Said Edward Worthy, property expert with Chelmsford-lawyers Gepp & Sons: "The change from April 2010 will have a significant impact on many property owners and landowners like farmers who let out cottages or annexes as holiday lets." "They will have to decide whether to bite the bullet and accept the loss of the tax benefits they were expecting, or whether to turn their holiday letting into a business similar to that of an hotelier by providing a substantial level of services to their holiday making clients." He added: "Whichever way they decide to go, they need to make sure they weigh up the effects very carefully, between losing the tax benefits and the steps that will be required to transform the letting business into one that will be recognised as a trade under the new regime by HMRC. "It's not going to be enough to pay lip service to the new requirements – and acting as your own Basil Fawlty may not be the best move for business!" If you would like to talk to one of specialists to discuss the above in greater detail, simply call 01245 228124 and ask to speak to one of our experts. This is not legal advice; it is intended to provide information of general interest about current legal issues. • For additional information or comment please contact: Edward Worthy of Gepp & Sons.