Revisiting Key Points from the Spring Budget 2024: Furnished Holiday Lettings (FHL) Tax Benefits Changes

FHL business operators are expressing concerns about the recent changes to the FHL regime. The elimination of this regime is anticipated to have a big impact on the industry, with an estimated 50,000 jobs at stake. Experts project that the changes will raise £35 million in the tax year 2025/26, and foresee this figure to increase to £245 million by 2028/29.

The key changes taking effect from 6th April 2025 are:

  1. Interest incurred on loans for a furnished holiday letting business will no longer be deductible. Instead, the individual’s tax liability will be relieved through a 20% tax credit.
  2. Higher-rate taxpayers will see a reduction in tax relief for interest to the standard 20% rate.
  3. Capital gains on the disposal of furnished holiday letting assets by individuals will be subject to the Capital Gains Tax (CGT) rate of 18% or 24%, depending on the profit band.
  4. Withdrawal of the capital gains tax (CGT) rollover relief for furnished holiday lets, except in cases of compulsory purchase. Meaning if you sell your holiday rental property, you may have to pay more in taxes.
  5. Expenditure on qualifying assets for furnished holiday rental business will no longer qualify for capital allowances. However, you may still claim a deduction from profits for the cost of replacing domestic items.

The impact on pension contributions is also important. Currently, profits from furnished holiday lettings are considered relevant earnings for pension contributions. Individuals relying on these profits to claim tax relief on their pension contributions may need to seek alternative advice.

There are both challenges and opportunities for owners of furnished holiday rentals noted below:

  • Owners may lose certain tax benefits they previously enjoyed.
  • Those selling their properties after 6th April 2024 will benefit from a reduction in the higher rate of CGT for residential property gains, dropping from 28% to 24%.

Property owners may want to re-evaluate their investment plans because of the changes, which could see an increase in holiday homes being put up for sale. But the full impact remains uncertain and we can only wait for the fiscal landscape to unfold.

We have linked the government’s website for you to access more information about the topic – Spring Budget 2024 — Overview of tax legislation and rates (OOTLAR) – GOV.UK (www.gov.uk)