In a surprising move announced during the Spring Budget, the Furnished Holiday Let (FHL) regime is set to be abolished from April 2025. After much anticipation, the government has now released the long-awaited draft legislation and technical guidance.
Despite ongoing lobbying efforts within the sector and a change of government since the initial announcement, it appears increasingly likely that these changes will indeed take effect. If you operate an FHL property, it’s crucial to seek advice on how these modifications will impact your business.
The draft legislation outlines the following key points:
- Finance Cost Restriction Rules: Loan interest will be restricted to a tax credit at the UK basic rate of Income Tax, rather than the owner’s marginal rate.
- Capital Allowances: Rules for new expenditure will be removed, but a deduction will be allowed for the replacement of domestic items.
- Capital Gains Tax Treatment: Favourable treatment for capital gains tax, including Rollover relief, Gift holdover relief, and Business Asset Disposal relief, will be withdrawn.
- Pension Tax Relief: FHL income will no longer be considered when calculating relevant UK earnings for determining maximum pension tax relief.
Once the tax regime is repealed, furnished holiday let properties will become part of the owners’ UK or overseas property rental business, subject to the same rules as buy-to-let properties, although specific transitional rules will apply:
- Existing Capital Allowance Pools: These will continue to offset profits until exhausted, but no new expenditure after 6 April 2025 (1 April 2025 for companies), will qualify for capital allowances.
- Unused FHL Losses: Any carried-forward losses from April 2025 will merge with existing property losses and can be offset against future profits from the property rental business.
- Business Asset Disposal Relief: Conditions for properties must be met to qualify for this relief.
If you are considering selling your FHL property prior to April 2025 then now is the time to get in touch with EQ to ensure your tax position is clarified in relation to the above changes.