Business Tax

Furnished holiday lettings

For many years, income from FHL has been treated as a trade for income tax purposes, enjoying a number of advantages over general property rental. A FHL has to satisfy a number of conditions about availability for letting, actual periods let during the year and length of stays; if it qualifies, the advantages include unlimited relief for finance costs, capital allowances, and CGT business reliefs on disposals.

As widely predicted before the Budget, the Chancellor has decided to abolish the favoured treatment of FHL. He said this was to eliminate the advantage of short-term letting over longer-term letting to residential tenants, with the intention of making more property available for residents rather than visitors.

FHL treatment will be abolished from 6 April 2025. Details of the rules are not yet available, but it is likely that there will be tax charges arising on the transfer of properties from the FHL regime to the normal rental regime (such as balancing charges on assets on which capital allowances were claimed). Where money has been borrowed to finance the purchase of FHL property, the restrictions on interest relief for general residential rental income will apply in 2025/26.

Anti-forestalling rules will apply from 6 March 2024 to prevent taxpayers attempting to preserve the effect of the FHL rules on future capital gains by entering into unconditional sale contracts in advance.

Find more about The Spring Budget here:

The Spring Budget 2024 is here!