Do you own a Furnished Holiday Let? Here are the upcoming changes to tax rules you need to know about
The government has announced new tax rules for furnished holiday lettings (FHL), which will come into effect soon. These changes will see FHL income treated the same as other property income, and the preferential tax rules that applied to FHLs as a trade will be repealed.
This may impact your tax planning, so here’s a summary of the Furnished holiday let tax updates and key changes:
1. Pension contributions
From April 2025, income from FHL will no longer count as relevant UK earnings for pension purposes. This means you won’t be able to make tax-relievable pension contributions based on your FHL income.
2. Finance costs on dwellings
The amount of tax relief you can claim on residential property finance costs (e.g., mortgage interest) will be restricted to the basic rate of income tax. This restriction will now apply to FHLs as well.
3. Replacement of domestic items
Instead of claiming capital allowances, property rental businesses can claim relief on the replacement of certain domestic items, such as furniture and appliances. FHLs will now fall under these rules too.
4. Plant and machinery allowances
While FHLs won’t be able to claim capital allowances going forward, any unused allowances from earlier years can still be carried forward and applied to your business in the future.
5. Jointly held property
If you own property jointly with a spouse or civil partner, the income will be treated as shared equally between you, regardless of who actually receives it. This rule will now apply to FHLs.
6. Capital gains tax (CGT)
From April 2025, FHLs will no longer benefit from CGT reliefs such as roll-over relief and Business Asset Disposal Relief (BADR). These reliefs will be withdrawn for any disposals made after 6 April 2025 (1 April 2025 for companies).
7. Carrying forward losses
If you’ve made a loss in your FHL trade up to and including the 2024/25 tax year, you can carry that loss forward and set it against income from a similar property business in 2025/26 and beyond.
8. Capital gains anti-forestalling: Disposals under unconditional contracts
To prevent people from taking advantage of certain capital gains tax (CGT) reliefs by using unconditional contracts, a new rule has been introduced. Simply put, if you enter into an unconditional contract between 6 March 2024 and 6 April 2025 (1 April 2025 for corporation tax), but the actual sale of the asset happens on or after 1/6 April 2025, some CGT reliefs won’t apply unless two conditions are met:
- The purpose of entering the contract wasn’t to avoid the changes to capital gains rules.
- The contract was made entirely for commercial reasons, or the people involved in the contract aren’t connected (i.e., no special relationship between them).
This applies to reliefs like roll-over relief, relief for gifts of business assets, Business Asset Disposal Relief (BADR), and more. Any claim made must include a statement confirming that these conditions have been satisfied.
If you need further clarification on any of the above information, or if you’re looking for an expert to help you navigate these tax changes to Furnished Holiday Lets, our super-savvy tax specialist, Martyn Olver, has over 2 decades experience and is on hand to help you.
Alternatively, visit the government’s website for further details about the Furnished holiday lettings tax regime abolition
