HM Revenue and Customs (HMRC) have published draft legislation and a policy paper outlining the proposal to abolish the Furnished Holiday Lettings (FHL) tax regime. This was originally announced by the previous government and any hopes that this may be stalled by the new government are now laid to rest.
It has been proposed that the new measures will take effect on or after 6 April 2025 for Income Tax, Capital Gains Tax (CGT) and from 1 April 2025 for Corporation Tax.
The proposed draft legislation will remove the tax advantages that FHL landlords currently enjoy over other property businesses.
From April 2025:
- Loan interest relief will be restricted to the basic rate of Income Tax.
- Allowances for new capital expenditure will be removed and replaced with ‘replacement of domestic items’ relief. This means you will not get tax relief for new qualifying capital expenditure (such as furniture, beds and white goods) until they are replaced.
- CGT reliefs such as rollover relief, business asset disposal relief (BADR), gift relief when you dispose – by sale or gift – of a qualifying FHL property will no longer be available. However, if the FHL business ceases before 6 April 2025, BADR may still apply if the property is sold in the following three years.
- FHL income will no longer be regarded as ‘relevant UK earnings’ for pension purposes.
- FHLs profit/losses which are owned by married couples/civil partners will be allocated equally.
From April 2025, FHL properties will be included in your UK (or overseas) property business and will be subject to the same tax regulations as residential property businesses.
There are some specific transitional rules that will apply:
- If there are existing pools of capital expenditure on which annual writing down allowances have been claimed before, these will continue.
- FHL losses previously generated and available to carry forward can be set against your UK (or overseas) property business.
From 6 March 2024, an anti-forestalling rule will be in effect to prevent tax advantages being gained by using unconditional contracts to secure current CGT reliefs while completing the sale or gift of a property after April 2025. However, there are exceptions to this rule.
If you own FHL properties, we recommend you review the effects that the above changes in legislation will have on your business. Please contact one of our tax advisers on 01223 810100 for help and advice.
