The government announced plans in this year’s Spring Budget to alter how holiday lets are taxed. In July, draft legislation was published which explains the new rules and when they will be enforced.
Property tax expert, Jonathan Cunningham, explains more in our latest blog.
What are the changes?
The Furnished Holiday Lettings (FHLs) tax regime is set to be abolished from 6 April 2025 – and the changes are set to end the advantageous tax treatment of holiday lets.
Starting from April 6, income and gains from furnished holiday lettings (FHLs) will be deemed part of the owners’ property business and will be taxed in the same manner as other property income and gains.
Other changes include:
- Loan interest for furnished holiday lettings will now be limited to the basic income tax rate as finance cost restriction rules will apply from April 2025
- New expenditure will no longer qualify for capital allowances
- FHLs will be eligible for domestic items replacement relief, aligning them with other property businesses
- Tax relief on eligible gains from trading business assets will no longer be available
- Income from FHLs will no longer be included in relevant UK earnings when calculating maximum pension relief
All changes highlighted above will apply to any individuals, businesses or trusts that operate or sell accommodation classed as FHL.
The changes will come into effect on 6 April 2025 for Income Tax, and on 1 April 2025 for Corporation Tax. On these dates, the FHL tax regime will be abolished.
Transitional rules
Although the new rules for holiday lets won’t take effect until next year, transitional provisions have been introduced for FHLs:
Capital allowances – under the new rules, expenditure on holiday lets will not qualify for capital allowances, consistent with standard property businesses Capital allowance claims made before the abolition dates, however, can still be claimed over time.
Loss carry forward – losses from FHLs can only be offset against future FHL profits from the owner’s overall UK or overseas property business.
Tax reliefs – FHLs currently qualify for reliefs such as roll-over relief, business asset disposal relief, and gift relief. From 6 April 2025, these reliefs will end, however, existing qualifications for these reliefs, where conditions are met before the changes take effect, will remain valid.
Business Asset Disposal relief – if the FHL business ceased before the rule change, the 3-year relief period will still apply.
Anti-forestalling rule – to prevent individuals, businesses and trusts taking advantage of tax benefits through early property sales, an anti-forestalling rule was introduced, and has been effective since 6 March 2024
Capital allowances on FHLs – now is your chance to claim
The abolition of the FHLs tax regime means that now is your chance to claim capital allowances for any historic expenditure, and it could also be possible to claim on the original acquisition of the property being used as a holiday let – before the rules change.
This is a complex area of tax, so we would recommend speaking to our property tax specialist, Jonathan Cunningham, to ensure you are not missing out on any allowances and maximising any reliefs which are still available.
What are the next steps?
The abolition of the FHLT regime is set to have a significant impact on landlords and property owners – the PM+M team can help you understand the changes, your tax obligations, and ensure you claim the historic reliefs you may be entitled to. To arrange an informal chat to discuss your circumstances in more detail, please contact PM+M tax specialist, Jonathan Cunningham, by clicking the button below.
