Hundreds of thousands of Britons who own second homes in Europe could receive a windfall of up to five years' worth of tax paid back to them by HM Revenue & Customs (HMRC).

In a bizarre twist to a change in tax law slipped out by HMRC alongside the Budget this week, it emerged that owners of furnished holiday lets on the Continent would be given the opportunity to apply retrospectively for a tax break previously reserved only for owners of UK-based holiday lets.

The change will simultaneously penalise owners who let out their UK properties to holidaymakers as the tax break will be scrapped altogether next April, forcing them to pay thousands of pounds extra a year to HMRC.

The decision, which will prove embarrassing for the Government, states that from April 6, 2010, furnished holiday lets in the UK will no longer be treated as business assets, against which owners can offset losses against their other income and roll over capital gains tax to reduce their tax bill. The break was originally introduced in the 1980s as a way of encouraging British tourism.

An estimated 100,000 people who let out their second homes for part of the year to benefit from the lower tax bill stand to lose around £4,000 a year after the rule change, according to holidaylettings.co.uk.

The Government withdrew the concession after the European Union ruled that it breached EU law by discriminating against those who owned second homes in other European countries, such as France and Spain. HMRC then had to choose between extending the tax break to all furnished holiday let owners at home and abroad, which it calculated would cost the Government £15 million, or abolishing it completely.

Mike Warburton, senior tax consultant at Grant Thornton, the accountancy firm, said: “Typically, the Government has decided that instead of extending the tax to all holiday-let owners, it will take it away completely but will offer this window of opportunity to owners of European property for a limited time to redress the balance.” It is expected that many owners of UK holiday lets will sell up next year after the break is scrapped. A growing number of second home owners had been taking advantage of the rule as a way of contributing to the costs of ownership to raise much-needed extra cash in the downturn, rather than leaving the homes empty while they are not there.

Ross Elder, of holidaylettings.co.uk, said: “This is not a good move for encouraging UK tourism. Many owners had been using the break and now some will have to sell.”

Patrick King, tax principal at MacIntyre Hudson, the accountancy firm, said: “The majority of landlords with furnished holiday-let properties in the UK are, for all intents and purposes, running a business. While the Government has lectured rural communities on the need to diversify their income streams, it is now punishing one of the most common means available of doing this. This is clearly a backhanded attempt to weasel out of EU obligations and in the process raise additional revenue.”

An estimated million Britons own second homes abroad, according to holidaylettings.co.uk. To be eligible for the allowance, properties must be let for ten weeks a year and available to let for 140 days.

Eligible owners of foreign property have until July 31 2009 to apply to amend their tax returns for a rebate going back to the tax year 2006-07.

However, for claims going back to 2003-04, owners can write a letter to the tax office claiming that there has been an error or mistake on previous returns. Mr Warburton said: “In most cases, the Revenue will probably grant this.”