The End of Furnished Holiday Lettings (FHL) and What It Means for Property Owners

The End of Furnished Holiday Lettings (FHL) and What It Means for Property Owners

The end of Furnished Holiday Lettings (FHL) is a significant change in the tax landscape that will affect many property owners. As Merranti Accounting, we want to ensure you understand the implications and how to navigate this transition effectively.

What are Furnished Holiday Lettings (FHL)?

FHLs are properties that meet specific criteria set by HMRC, allowing owners to benefit from various tax advantages. These include:

  • Capital Allowances: FHL owners can claim capital allowances on furnishings and equipment, which is not available to other types of residential properties.
  • Business Property Relief: This can provide relief from Inheritance Tax.
  • Profits Treated as Earned Income: This allows for pension contributions.

Criteria for FHL

To qualify as an FHL, a property must:

  1. Be located in the UK or the European Economic Area (EEA).
  2. Be furnished and available for commercial letting to the public for at least 210 days a year.
  3. Be let for at least 105 days a year.
  4. The property must not be occupied by the same person for more than 31 continuous days in a year.

Why is FHL Ending?

The changes are part of a broader effort to simplify the tax system and ensure a level playing field between different types of property businesses. The specific date for the end of FHL status has not been confirmed yet, but property owners need to start preparing for this transition.

Implications for Property Owners

The end of FHL status means that properties will no longer benefit from the favorable tax treatments previously available. Here are some key implications:

  1. Loss of Capital Allowances: You will no longer be able to claim capital allowances on furnishings and equipment.
  2. Change in Tax Treatment: Profits from your property will be treated as unearned income, which can affect your tax rate and ability to make pension contributions.
  3. Impact on Business Property Relief: The loss of FHL status could impact your eligibility for Business Property Relief on Inheritance Tax.

Steps to Take

  1. Review Your Portfolio: Assess which of your properties currently qualify as FHL and determine how the loss of this status will impact your tax situation.
  2. Consult with Tax Advisors: Our team at Merranti Accounting can help you understand the full implications and develop a strategy to mitigate the impact. This may include restructuring your property portfolio or exploring other tax-efficient investment opportunities.
  3. Keep Updated: Stay informed about the exact date of the transition and any further guidance from HMRC. We will keep our clients updated with the latest information.

Alternative Strategies

As the tax advantages of FHLs phase out, consider these alternatives:

  • Long-Term Letting: Transitioning to long-term residential letting may provide more stable income, although it comes with different tax implications.
  • Diversification: Explore other property investments or business opportunities that offer tax benefits.
  • Utilize Remaining Reliefs: Make the most of the remaining tax reliefs and allowances before the FHL status officially ends.

The end of Furnished Holiday Lettings marks a significant shift for property owners. While this change may pose challenges, proactive planning and strategic adjustments can help mitigate the impact. At Merranti Accounting, we are committed to helping you navigate these changes and optimize your tax position. If you have any questions or need personalized advice, please do not hesitate to contact us.