As of April 2025, the government will abolish the Furnished Holiday Lettings (FHL) tax regime. This move is part of a broader plan to level the playing field between landlords offering short-term holiday lets and those providing long-term residential properties, such as buy-to-let.
What Does This Mean for Landlords?
From April 2025, income and gains from furnished holiday lets will be considered general property business income. The current tax advantages currently enjoyed as an FHL landlord will disappear. Here’s a breakdown of the key changes:
- Finance Cost Restriction: For income tax purposes, loan interest will be restricted to the basic rate, similar to the rules for other property businesses.
- Capital Allowances: The generous capital allowances once claimed for new expenditure will be replaced by limited relief available by replacing domestic items.
- Capital Gains Tax (CGT) Relief: Reliefs currently available for trading business assets, such as roll-over relief and business asset disposal relief, will no longer apply to FHL properties.
- Pension Contributions: Income from FHLs will no longer count as relevant UK earnings when calculating the maximum amount you can contribute to your pension with tax relief.
Transitional Rules – There will be some transitional arrangements to ease the shift:
- Ongoing Projects: If you’re in the middle of a project, a short-term allowance will be available for capital allowances, but any new expenditure after the start date will fall under the new property business rules.
- Carrying Forward Losses: Losses from FHLs can still be carried forward and set against future profits of your property business, whether in the UK or overseas.
- Existing Reliefs: Reliefs such as business asset disposal relief, may still apply under certain conditions if your FHL business ceased before the changes take effect.
To prevent last-minute tax planning and take advantage of the old rules, an anti-forestalling rule will apply from 6 March 2024. This will prevent the use of unconditional contracts locking in current reliefs before the new regime kicks in. The government expects these changes to bring in an additional £35 million in the 2025-26 tax year, estimated to more than double by 2028-29.
If you currently own or plan to invest in furnished holiday lets, it’s essential to start planning for these changes now. Speak with your accountant or financial advisor to understand how the new rules will affect your business and what steps you should take to prepare.
Abolition of the furnished holiday lettings tax regime – GOV.UK (www.gov.uk)
