The abolition of the Furnished Holiday Let tax rules

Furnished Holiday Let Tax Rules – Draft Legislation Now Released

Following the announcement in the Spring Budget that the Furnished Holiday Let tax rules would be abolished in April 2025, we now have the draft legislation on the proposals for how this will work and the transitional rules.

What did we already know?

The government announced that it would abolish the furnished holiday lets tax regime in April 2025. Furnished Holiday Let (FHL) properties will be treated as long-term lets, removing some of the key tax benefits for owners. These changes will take effect from 6 April 2025 (for individuals) and 1 April 20025 ( for limited companies)

What are the key tax benefits currently available to individuals who are FHL owners?

• Interest incurred on borrowings is fully deductible against taxable profits rather than limited to a 20% credit.
• Beneficial capital allowances rules allowing tax relief for fixtures
• Various capital gains tax reliefs, including potential for business asset disposal relief (10% rate on sale), rollover relief and gifts hold-over relief with disposals now being taxed at 18% and 24%( from 6 April 2024), depending on your other income in the year.
• Profits from FHLs can be treated as relevant earnings for pension purposes

Income from a FHL held jointly by a married couple or civil partners is not caught by the default 50:50 split for income tax purposes

What is in the draft legislation – some good news?

• Capital allowances:

  • FHL property owners will no longer be eligible for beneficial capital allowance treatment. Still, they will instead be able to claim relief for the replacement of domestic items in line with other property-letting businesses.  the good news is that where you have an ongoing capital allowance pool that has not been fully relieved, you can continue to claim by writing down allowances on that pool. Any new expenditure from April 2025 must be considered under the new rules.

• Losses:

  • The proposed loss rules allow for FHL losses to be used flexibly going forward against other property profits. This is good news for taxpayers who have other rental properties.

• Capital gains reliefs

  • Under the current rules FHL properties are eligible for rollover relief, business asset disposal relief (10% tax rate), gift relief, relief for loans to traders and exemptions for disposals by companies with substantial shareholdings. After the changes, eligibility for relief will cease. However, where criteria for relief include conditions that apply in a future year, these specific rules will not be disturbed where the FHL conditions are satisfied before the tax regime is abolished.

• Business Asset Disposal Relief:

  • In relation to business asset disposal relief (10% tax rate, 14% from April 2025), where the FHL conditions are satisfied in relation to a business that ceased prior to the change in rules, relief may continue to apply to a disposal that occurs within the normal 3-year period following cessation. This is also good news for planned sales that may be delayed as long as the business has ceased.

• There is an anti-forestalling rule:

  • This prevents the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains reliefs by selling to a connected party. This rule applies where exchange was on or after 6 March 2024 (i.e. the date of the Spring Budget) and there is an onward sale to a third party after 5 April 2025.

Furnished Holiday Let Tax Rules – In Summary

The draft legislation ( and we emphasise that it is only draft at this stage) has definitely allayed some fears, specifically the threat of balancing charges arising on unrelieved capital allowance pools.

Now is the time to consider your options and plan the future of your holiday letting business. Things to consider would be:

• If you have a husband-and-wife property partnership, you may have taken advantage of the fact that you have been able to split profits from your FHL business unequally, but once the changes take effect, the situation will default to 50:50
• If you are planning to sell the property, timing will be important and if you are relying on claiming Business Asset Disposal Relief, actually ceasing the business at the right time will be critical.
• If you previously claimed holdover or rollover relief when the property was purchased, you should now consider the Capital Gains Tax that would be payable if sold after April 2025.
• The profitability of the property if you have considerable borrowing on it.
• The timing of large capital expenditure before the rules change.

Take Advice

Please do get in touch if you would like to discuss your plans and understand how you will be affected by the changes to the furnished holiday let tax rules.

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