Furnished Holiday Lets Regime to be Scrapped
Chancellor Rachel Reeves has already revealed some of the changes she will announce in her first budget on 30 October.
Landlords of Furnished Holiday Lets (FHL) currently enjoy different tax legislation compared with long-term rental accommodation. This will change in April 2025 when this ‘special’ treatment of FHLs will be abolished. FHLs will become part of landlords’ UK or overseas property businesses.
Originally announced by Jeremy Hunt as Chancellor in March 2024, the new government is continuing with plans to abolish the rules pertaining to FHLs.
The new legislation involves four key changes:
- Applying the finance cost restriction rules so that loan interest will be restricted to the basic rate for Income Tax.
- Removing capital allowances rules for new expenditure and allowing replacement of domestic items relief.
- Withdrawing access to reliefs from taxes on chargeable gains for trading business assets.
- No longer including this income within relevant UK earnings when calculating maximum pension relief.
(Source: gov.uk)
Transition rules regarding capital allowances and losses on FHL properties will apply, softening the blow for FHL landlords:
- Instead of beneficial capital allowances treatment FHL properties will instead be eligible for ‘replacement of domestic items relief’. This is in line with other property businesses.
- FHL properties will be part of the person’s UK or overseas property business as appropriate — that property business will then include the amalgamated profits and losses of all the properties in that business.
- Any FHL business losses after repeal can be offset against future years’ profits of either the UK or overseas property business as appropriate.
- Eligibility for reliefs will cease unless existing conditions apply in a future year and FHL conditions are satisfied before repeal.
- If a business ceases trading prior to the abolishment of the FHL scheme, relief may continue to apply to a disposal occurring within three years.
In addition, the government is introducing an anti-forestalling rule. This means that FHL landlords cannot use unconditional contracts to retain capital gains tax relief available within the current FHL legislation.
This is a big change for the FHL property sector. Are you affected by the abolishment of the FHL scheme?
Planning for the new rules that apply from next April keeps you as tax efficient as possible. To find out more, talk to the friendly tax experts at Hargreaves Owen. Arrange an informal discussion without obligation – let’s maximise your property business’ potential and minimise your tax bill.
(Explore the other changes announced for the autumn budget.)