If you own property classed as a furnished holiday let (FHL) for tax purposes, then it’s vital that you’re aware of the planned abolition of its favourable tax treatment from 6th April 2025 (1 April 2025 for companies).  

Although new legislation is yet to be drafted, we can expect short-term and long-term residential lets to receive the same tax treatment, meaning that it will no longer be tax-advantaged to commercially let your property for a series of short periods. This comes as the government plans to ‘level the playing field’ between ownership of short-term and long-term lets, with the overall goal of helping people to live in their local area. 

Reminder of the current regime 

At the moment, your FHL benefits from the following tax treatment: 

  • Being able to fully deduct interest incurred on mortgage borrowings from taxable profits. 
  • The availability of a number of capital gains tax reliefs, including business asset disposal relief, rollover relief and business asset holdover relief.  
  • Capital allowances for items such as furniture, equipment and fixtures. 
  • Classing profits as earnings for pension purposes, allowing tax-advantaged contributions.

Uncertainties regarding the new regime 

Without any legislation regarding the changes, right now we have more questions than answers. Some of the key areas of uncertainty are as follows: 

  • Will there be any transitional provisions regarding capital allowances? Without such provisions there would be a balancing charge giving rise to a tax liability when the current regime ends. 
  • What will happen to existing FHL losses, which under current legislation, can only be used against future FHL profits? 
  • Will HMRC give a clear definition of ‘trading’? Getting rid of FHLs means there’s much more of a gulf between a rental property and a B&B. 
  • In the budget it was announced that anti forestalling rules in relation to capital gains tax relief would apply from 6 March 2024. We do not know yet if this will apply to all or just some of the existing capital gains tax reliefs. 
  • Will the current regime regarding business rates and FHLs remain, or will all FHLs become liable to pay council tax instead? This would have an adverse effect on owners currently liable to business rates but qualify for small business relief.

How can you prepare for the changes? 

Firstly, the key preparation for the abolition of the FHL tax regime, is to understand how owning and letting the property will impact your personal finances without the tax-advantaged rules. Secondly, it would be valuable to consider what options are available to you, for example it may be beneficial to incorporate or perhaps accelerate expenditure on items such as furniture, fixtures or equipment to the 2024/25 tax year. Although when considering any planning it would be necessary to wait for draft legislation before any action is taken. 

How can we support? 

If you own a furnished holiday letting, we want to help you navigate the changes that will arise when the tax regime is abolished on 6th April 2025. In the meantime, as the new legislation is announced, we can help you to weigh up available options and consider the most tax efficient routes to take.

Please don’t hesitate to get in touch for further assistance.