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People who own and let out holiday homes in Europe have been handed a 12-month window to reclaim tax potentially worth tens of thousands of pounds.

Anyone who has paid capital gains tax on a sale of a European property, or who has failed to cover their costs when letting out the property to holidaymakers, could now receive a rebate on tax paid in the past five years.

The tax break is an attempt by the government to bring the rules for European holiday homes into line with those for second homes in the UK.

Owners of holiday lets in the UK can offset losses incurred on letting the property against their other income to reduce their tax bill. They are also able to take advantage of additional reliefs to minimise capital gains tax on any profit from a sale. These benefits had not been available on second homes outside the UK but the discrepancy has been viewed as a contravention to European law.

The government is planning to remove the tax benefits on all holiday homes – including those in the UK – next year. Until then, however, it has extended the benefits to owners of properties abroad and allowed them to claim retrospectively.

“This is good news for people with overseas property, who will be able to take advantage of the relief for a short time,” said Leonie Kerswill, partner at PricewaterhouseCoopers. “But it is bad news for people who have UK property as they have only got the relief for another year.”

There are two main instances in which property owners can qualify for a rebate.

The first is if the income they have received from letting the property has not covered related costs, such as mortgage payments, bills, insurance and fees, in one or all of the past five years.

If this is the case, the owner may now be able to offset their losses against income tax they have already paid and receive a rebate. For example, someone who has had to pay out £5,000 more than the rental income they received in each of the past five years could offset £25,000 against income tax. A higher rate taxpayer could expect a rebate of £10,000 – 40 per cent of £25,000.

The second is if owners have paid capital gains tax on a European property in the past five years. They could be entitled to additional “taper” relief, which could substantially reduce the amount of tax they should have paid.

Conti Financial Services, which provides overseas mortgages, said someone who made a £100,000 profit on a £200,000 property might have paid capital gains tax of around £30,000. This person may now be able to include further tax reliefs, which could reduce the CGT liability to as little as £2,000 – and mean a rebate of £28,000.

“Anyone who thinks they could be eligible for these tax breaks should act quickly,” said Michael Axelrod, commercial director at Conti. “This is an opportunity limited to the current tax year and it would be a great shame to miss out on a valuable windfall.”

Source FT.com

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