If you have a furnished holiday property you let, this will apply to you
The government are introducing new tax treatments for furnished holiday lets from April 2025.
They will remove the tax advantages that current furnished holiday let landlords received in 4 key different ways:
Application of the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax
Removing capital allowances rules for new expenditure and allowing replacement of domestic items relief
Withdrawing access to reliefs from taxes on chargeable gains for trading business assets
No longer including this income within relevant UK earnings when calculating maximum pension relief
As produced in the government Policy Paper on 29th July 2024:
"After repeal, former furnished holiday let properties will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses.
The following specific transitional rules will apply:
businesses with FHL properties will no longer be eligible for more beneficial capital allowances treatment but will instead be eligible for ‘replacement of domestic items relief’ in line with other property businesses — where an existing FHL business has an ongoing capital allowances pool of expenditure, they can continue to claim writing-down allowances on that pool — any new expenditure incurred on or after the operative date must be considered under the property business rules
under current rules a loss generated from a FHL property business can only be carried forward and utilised against future profits of that same FHL business — after the changes, former FHL properties will be part of the person’s UK or overseas property business as appropriate — that property business will then include the amalgamated profits and losses of all the properties in that business
persons may have losses to carry forward from their FHL business after repeal — losses generated from this FHL business will be permitted to be carried forward and be available for set off against future years’ profits of either the UK or overseas property business as appropriate
under current rules FHL properties are eligible for roll-over relief, business asset disposal relief, gift relief, relief for loans to traders, and exemptions for disposals by companies with substantial shareholdings — after the changes eligibility for the reliefs will cease — however, where criteria for relief includes conditions that apply in a future year these specific rules will not be disturbed where the FHL conditions are satisfied before repeal
in relation to business asset disposal relief, where the FHL conditions are satisfied in relation to a business that ceased prior to the commencement date, relief may continue to apply to a disposal that occurs within the normal 3-year period following cessation
there is also an anti-forestalling rule — this will prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules — this rule applies from 6 March 2024"
photograph courtesy of the Suffolk Coast DMO
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