Goodbye to furnished holiday lets

Since first being introduced forty years ago, furnished holiday letting (FHL) tax breaks have been very beneficial to those owning qualifying properties. With the spread of Airbnb and years of low interest rates. Iwt seems that more and more people have been buying properties to let short-term to holiday makers. This has distorted the normal residential lettings market and perhaps, too, reduced the supply of properties on the market for first-time buyers. At the Budget, the Chancellor announced that these tax breaks will end after 5 April 2025. This will have the following main consequences for those affected.
1. Currently, finance costs on the property (mainly mortgage interest, but also including other items. Such as arrangement fees) are fully deductible against the rental income. From the 6 April 2025, these costs will now only attract basic rate tax relief. Which itself may be subject to restrictions. This will be particularly important where someone is highly geared (i.e. the cost of the property was largely funded by loans).
2. Various CGT reliefs will no longer be available:
• Business asset disposal relief (BADR), which over one’s lifetime can reduce CGT by (at current rates) up to £100,000.
• Rollover relief, which enables the gain on the sale of a FHL to be deferred. Where the proceeds are reinvested in another qualifying property.
• Gift relief, which allows a similar deferral when an FHL is gifted (e.g. to a family member). Without the relief, a gain is calculated based on deemed proceeds of the property gifted. If the long-term plan is to gift your FHL to someone, you may want to consider bringing forward the gift. So that it takes place this tax year.
3. Fixtures and fittings (e.g. tables and beds) will no longer qualify for 100% relief against tax when first installed in such a property from 6 April 2025. The rules will be the same as for normal residential lets (i.e. only the costs of replacing such assets will attract tax relief).

 

If you own one or more FHLs, it is important to understand how these changes will affect you and to plan for any extra tax that may become due. In particular, the changes to tax relief on finance costs may mean some FHL businesses are no longer economic. Particularly with, it seems, the days of ultra-low interest rates now over. Please contact us if you need help in quantifying how these changes will affect your letting business.