FINANCE
Abolition of the Furnished Holiday Lettings Tax Regime
THE FAVOURABLE TAX TREATMENT PREVIOUSLY GIVEN TO FURNISHED HOLIDAY LETS ( FHLS ) WILL BE ABOLISHED FROM 1 APRIL 2025 FOR CORPORATION TAX AND 6 APRIL 2025 FOR INCOME TAX . GOING FORWARDS , INCOME FROM A FHL WILL BE TREATED IN LINE WITH ALL OTHER PROPERTY INCOME , IN A BID TO PROMOTE FAIRNESS AND ALIGN TAX RULES BETWEEN FHLS AND OTHER PROPERTY BUSINESSES . THE CURRENT RULES PROVIDE BENEFICIAL TAX TREATMENT FOR FHLS SO THAT THEY ARE TREATED MORE LIKE TRADING RATHER THAN PROPERTY BUSINESSES . THIS IS IN LINE WITH HOTELS , CARE HOMES AND COMMON AREAS WITHIN STUDENT ACCOMMODATION .
by ADAM LACCHIN , TAX PARTNER , AZETS , Adam . Lacchin @ azets . co . uk
The Scope for Capital Allowances Claims When the abolition comes into force , those who run FHLs will no longer be able to claim Capital Allowances on new expenditure , although there will be transitional rules with a shortterm allowance where an existing FHL is partway through an ongoing project . Any new expenditure incurred on or after the operative date will be treated under the property business rules . However , where an existing FHL business has ongoing Capital Allowance pools of expenditure , they can continue to claim writing-down allowances on these .
Capital Gains Tax ( CGT ) Implications The abolition of the FHL regime also affects the CGT position on disposal of a holiday let property either by way of a gift or on sale . Several CGT reliefs currently available on disposal of a qualifying FHL property will be removed completely from April 2025 , subject to Business Asset Disposal Relief ( BADR ) continuing to be available on a disposal within two years of a pre-April 2025 cessation of that business . . Income Tax Implications The reclassification of FHL income as general property income is a key change , aligning it with other rental income streams and ending certain perceived preferential treatments .
Previously , FHL owners could fully deduct finance costs , such as mortgage interest , against rental income , but this will now be capped at the basic rate of Income Tax . This shift could significantly increase tax liabilities for those with substantial financing costs .
The ability to allocate FHL profits between spouses or civil partners for tax purposes is being removed . Currently , FHL profits generated from a jointly owned property can be allocated based on which spouse operates the holiday letting business and this can be tax efficient overall . With the abolition of the FHL regime , this flexibility will no longer be available , potentially leading to higher income tax bills for many couples .
Profits from FHLs are currently considered “ relevant earnings ” for pension contribution purposes . An individual ’ s relevant earnings can act as a ceiling for the pension contributions an individual can make whilst receiving tax relief . Profits from residential lettings are not considered relevant earnings , therefore if an individual ’ s income is solely from residential lettings , they may only be able to contribute £ 3,600 gross to their pension to benefit from tax relief . This could limit the ability to make tax-efficient pension contributions , impacting longterm retirement planning and reducing the potential for building up pension funds .
Planning Considerations Those running a FHL business or operating FHLs have a window of opportunity from now until April 2025 to utilise the tax reliefs available . In the case of Capital Allowances , they can make claims on their qualifying
properties . If making such a claim has previously been delayed due to cashflow reasons or non-urgency , now is the time to make the claim so the tax advantage can be secured .
It should be noted that if the FHL business is loss making , a Capital Allowance claim will still be beneficial as it will increase the losses which can be carried forwards to future periods and off-set future profits . There is no limit on how far back in time the expenditure was incurred to carry out a Capital Allowance review , provided the FHL is still in existence and the asset on which the claim is based is still owned .
We are here to help If you believe you might be affected by the changes to the FHL tax regime in April 2025 , please get in touch .
Local Offices : Ashford : 01233 629 255 Canterbury : 01227 454 861 Maidstone : 01622 690 666 Orpington : 01689 827 505 Sandwich : 01304 249 997
www . azets . co . uk
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