In the UK, special tax rules apply to rental income from properties that qualify as a Furnished Holiday Letting (FHL). Under the current FHL scheme, eligible individuals and businesses can:
However, the UK’s new government has confirmed that the furnished holiday letting regime will end from 6 April 2025 – in line with plans from the previous government.
In this article, Daniel Tomassen, Director in the Private Client Department, explains the impact of these changes and shares his advice for those currently undertaking renovations on their holiday let.
Daniel says: “In many popular rural and coastal areas, first time buyers are struggling with shortages in affordable housing. The government’s decision to scrap the FHL regime will eliminate the tax advantage for those operating holiday rentals over those who rent out their properties on a longer-term basis. For many landlords that operate FHLs, this change could lead to them deciding to sell up which would also increase the supply of properties on the market.”
What are the changes?
From 6 April 2025, landlords will no longer be able to claim capital allowances nor deduct interest in full against the rental income. They will also no longer be able to claim Business Asset Disposal Relief on a sale of the property, where the capital gain is subject to tax at a rate of 10%.
Alongside the policy document, the government has released draft legislation which, as it stands, appears to provide a chance for current FHL owners. The legislation confirms that the property will be treated as a normal buy-to-let from 6 April 2025. However, any unrelieved losses from when the property was an FHL can be carried forward and utilised in future years.
In addition, there will be no cessation of trade to the extent the property continues to be let-out in the year ending 5 April 2026. This means that capital allowances claimed in earlier years are not subject to a deemed clawback known as a balancing charge.
If you’re undertaking renovations
For FHL owners who have been contemplating undertaking renovations on their property, it appears they will have a window of opportunity before 5 April 2025 to claim capital allowances on qualifying expenditure incurred in the current year and possibly claim a 100% tax deduction.
In addition, FHL owners who have undertaken renovations recently should review the position to see if a claim can be made for qualifying expenditure before the relief ceases.
If you are a landlord looking for tailored tax advice, you can get in touch with Daniel here.
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