Changes ahead for Furnished Holiday Lets
In the recent Spring Budget announced in March 2024, the Chancellor revealed plans to abolish tax reliefs for Furnished Holiday Lettings (FHLs) starting from 5 April 2025.
Although the specific legislation hasn't been released yet and with a General Election not far away, here’s what we can expect:
Reducing Income Tax relief for finance costs - currently, finance costs are fully deductible with no restrictions. However, starting from 5 April 2025, these costs will only be claimable as a tax reducer at 20% of the costs, similar to buy-to-let mortgage interest relief. This change might push some taxpayers into higher or additional tax rate thresholds.
Removal of Business Asset Capital Gains Tax (CGT) rates - currently, selling these properties benefits from a reduced CGT rate of 10% on gains up to £1 million under the Business Asset Disposal Relief (BADR) rules. However, from 5 April 2025, FHLs are expected to no longer qualify for this relief, and gains will be taxed at the standard residential CGT rates—currently 24% or less if any or the gain falls in your basic rate tax band.
Withdrawal of further CGT Reliefs - At present, FHLs as business assets qualify for rollover and holdover reliefs. From 5 April 2025, these reliefs are expected to be withdrawn. This means gifting an FHL directly will trigger immediate CGT, unlike the current holdover provisions. Additionally, you won't be able to defer CGT by rolling over gains into a new FHL after this date
No Capital Allowances available - unfortunately, there will be no capital allowances on newly acquired business assets. However, you may be eligible for renewal relief on qualifying assets that are being replaced. Whilst we do not yet know the impact of this change, we fear it that any assets previously claimed for capital allowances will need to be revalued at market value as of 5 April 2025 which could trigger an immediate balancing charge, leading to additional tax payable! This is particularly relevant for landlords who have likely claimed 100% Annual Investment Allowance (AIA) on acquisition.
Loss Relief update - at the moment, losses from a FHL can be carried forward to offset future profits within the same FHL. We expect this to continue. Currently, non-FHL properties can offset their losses against profits from any other rental properties in the same tax year. We are hopeful that this option will also be extended to FHLs for losses incurred after 5 April 2025.
These changes could have significant tax implications, so it's a good idea to review your current position and plan ahead – please contact us to discuss further.