Changes to Furnished Holiday Lets

The current Furnished Holiday Let (FHL) advantageous scheme will be abolished with effect from 6 April 2025, as announced during the Spring Budget earlier this year.

WHAT TO EXPECT FROM THE CHANGES

• Currently, there is no relief restriction to mortgage interest and finance charges being claimed for properties that qualify as an FHL. From April 2025 appropriate finance charges will be restricted in the same way as they are currently for residential landlords.

• An FHL will no longer qualify as a ‘business asset’ for the purpose of claiming Business Asset Disposal Relief (BADR) and benefiting from a reduced rate of tax on sale. Instead the usual rate of capital gains tax (CGT) will be applicable as is now for residential property. However, this has at least reduced from 28% to 24% at the highest rate with effect from April 2024.

• FHL earnings will no longer be relevant for pensionable earnings and will be treated the same as normal investment income which are not relevant earnings for the purpose of determining what level of pension contributions an individual can make.

• Whereas now FHL owners can determine the split of profit to be out of sync with the legal ownership or benefiicial interest, like a partnership arrangement does. Instead the tax treatment will follow the underlying beneficial ownership under the new rules.

• FHL owners will no longer be able to claim capital allowances on equipement and furnishings for the property. They will have to claim for replacements on a like for like basis only, as is the case for residential landlords.

As usual, there is much more detail within the legislation and the benefits and pitfalls for owners will differ on a case by case basis so it is important to seek specific advice to match your circumstances.

HAS THE VAT POSITION CHANGED?

If the FHL will continue to be let out for short term holiday lets, the VAT rules will continue to apply., as this was not conditional because of the FHL, but because short-term lets are vatable, like hotel stays. So as it is now, it will remain important to consider the VAT threshold when letting any property on a short term arrangement.

---

FUSE is an independent Chartered Certified firm of accountants and tax advisors based in Highgate Village, North London. We provide a dynamic range of services to clients working in property, media, entertainment and professional services. Our clients vary in size from self employed sole traders, small enterprises and medium size businesses. We believe that comprehensive financial planning and sound business financial advice are the keys to growth and profitability.