In the Spring Budget 2024, it was announced that the government will be abolishing the Furnished Holiday Lettings (FHLs) tax regime from 6 April 2025. We are aware that these rules might affect you and thought we’d explain how they could impact you.
What are furnished holiday lets?
Furnished holiday lets are furnished residential properties that are let on a short-term basis and have to meet certain criteria to benefit from tax reliefs. See here for more details.
These reliefs are not available on other let residential property which has made them attractive investments for many.
What effect will this have on current FHL owners?
- Business Asset Disposal Relief (BADR) is currently available on the disposal of some qualifying FHL properties. This means gains that would have qualified for this relief at a capital gains tax rate of 10%, will now be subject to standard residential capital gains tax rates – 18% for gains within the basis rate band and 24% for gains taxable at the higher residential CGT rate.
- Capital allowances will no longer be available for fixtures and furnishings purchased for within the property. Instead, relief may be available for the replacement of domestic items in line with the rules for long term lets.
- Mortgage interest will no longer be available as a deduction from profits and will instead have to be claimed as a tax reducer, at 20% of the mortgage interest costs. This will therefore exclude these costs from being eligible for higher rate tax relief.
- Business asset rollover relief will no longer be available to reduce the gain liable to capital gains tax (potentially to nil) where the proceeds from the sale of an FHL are rolled over into another qualifying business asset.
- Gift holdover relief will no longer be available to reduce the capital gains tax liability arising on the gift of a qualifying FHL property, therefore affecting possible succession planning between family members.
- Currently, profits from FHLs are treated as relevant earnings for pension contributions. Relief is limited to contributions of the higher of £3,600 or 100% of net relevant earnings. FHL income will therefore no longer be considered for this purpose.
What should FHL owners do?
FHL owners should consider the options available to them before the rules are abolished in April 2025, which may involve accelerating plans to sell or gift properties before the rule changes are implemented.
Draft legislation on this will be published later this year so we will provide more information at that time.
If would like to discuss any of the above or anything else do not hesitate to contact us.
