Abolition of Furnished Holiday Let Regime

If you own furnished holiday home, you may need to take action before 5 April 2025 due a recent Budget announcement.

Capital gains tax on residential property

In the Spring Budget, it was announced that the top capital gains tax rate on the sale of residential property would reduce to 24% (from 28%) from 6^th April 2024.

Furnished Holiday Lets (FHLs) to be treated as UK Residential property rental for tax purposes

However, it was also announced that the tax advantageous regime of FHLs will be abolished from April 2025. This means that the FHLs will in future be treated the same as UK residential property rentals, consequently disqualifying them from the benefits they currently receive such as: 

1. Full interest deduction against rental income.
2. Capital gains tax reliefs, such as Business Asset Disposal Relief (CGT at 10%), rollover relief and gift hold over relief to enable deferment the gain.
3. Claiming Capital Allowances for qualifying capital expenditure.
4. Profits being treated as net relevant earnings for pension contributions.
5. Flexibility in the allocation of profits between spouses and civil partners.

Anti-forestalling rule

It was announced that there would be an anti-forestalling rule to prevent access to capital gains tax reliefs through the use of unconditional contracts, to apply from 6 March 2024. But this is yet to be enacted and so could be subject to change.

Review your FHL letting activity

It is worth relevant individuals reviewing their FHLs letting activity to consider how they could take advantage of the key tax benefits available as there is a window of opportunity now.

Draft legislation not yet available

However, the most critical aspect to note is that, despite the announcement in the Budget regarding the abolishment of Furnished Holiday Lets (FHL), there has been no draft legislation available as of yet. This lack of concrete legislative action leaves the FHLs in a state of uncertainty, particularly given the approaching general election. So there is a big question as to whether the next government decides to proceed with the abolishment of FHLs or perhaps instead chooses to retain them with potential modifications to existing reliefs, such as Business Asset Disposal Relief (BADR), and tightening of interest relief.

The current lack of clarity surrounding the FHL rules is reminiscent of past occurrences as this isn’t the first time the demise of FHL has been announced. In the 2009 Budget, a similar announcement was made, only for the rules to undergo revisions in subsequent years. Instead tightening measures were introduced, including increased qualifying letting periods and restrictions on sideways loss relief against other income. We may experience a repeat of history. 

How can we help?

More people are investing in property than ever before. Whether you have a second home in the countryside, a property abroad or a buy-to-let portfolio, the Hawsons tax team can help with your property taxes.

Our specialist property tax team can help with:

• The preparation of property accounts
• Calculating property tax
• Advice on ownership structure
• Capital Gains Tax planning
• Appropriate reliefs and allowances

Find out more about our property tax services