Abolition Of The Furnished Holiday Letting Rules

HMRC published draft legislation on 29 July 2024 confirming that they plan to go ahead with the abolition of the furnished holiday lettings (FHL) regime which was originally announced in the Spring 2024 Budget.

This means that holiday lettings will be treated as normal residential profits and taxed as such from April 2025. The following tax benefits will be lost:

• Capital gains – the disposal of an FHL qualify for Business Asset Disposal Relief (BADR) which means capital gains tax could be as low as 10%. From April 2025 the usual CGT rates for residential property will apply which is currently 18% at the basic rate or 24% at the higher rate.
   
• Mortgage interest relief – on an FHL the mortgage interest is treated as an allowable deduction when calculating rental profits which means that full tax relief is received whereas from April 2025 only a 20% tax credit will be received which is a reduction for higher and additional rate taxpayers.
   
• Expenses – capital allowances can be claimed in FHL’s which give tax relief for fixtures and fittings; this will not be allowable going forward.
   
• Pension contributions – because an FHL is classed as a trade, the profits count as relevant UK earnings which means that pension contributions can be made (as tax relief is limited to the higher of £3,600 or UK relevant earnings).

It’s worth speaking to your accountant to see how these changes will affect you and you can then make a decision whether to continue with holiday lets, move to more long-term letting or sell the property and the timing of any change.  You may also want to planning for the current tax year such as maximising pension contributions. Our tax compliance team will be able to assist if you do not have an accountant.