Goodbye to Furnished Holiday Lets: Key Tax Changes

For over 40 years, furnished holiday lets (FHLs) have offered landlords significant tax advantages. However, the rise of platforms like Airbnb, combined with low interest rates, has seen an influx of property purchases for short-term letting.

Consequently, the government has announced that FHL tax breaks will end after April 5, 2025, for individuals, and April 1, 2025, for companies.

Currently, FHL status offers several benefits, including full deductibility of finance costs, access to business asset disposal relief (BADR) with a 10% tax rate, and the ability to claim capital allowances for fixtures and fittings. Additionally, FHL income counts as pensionable, potentially increasing pension contribution limits. From April 2025, these benefits will disappear, and FHLs will be treated as standard property businesses, subject to stricter tax rules.

Key changes include:

• Finance costs will no longer be deductible but replaced by a 20% tax reduction, potentially increasing landlords’ tax liability.
• Losses from FHL businesses will integrate into standard property businesses, while prior losses can offset future profits.
• Reliefs like BADR, rollover relief, and gift relief will cease, requiring strategic planning for property transfers or disposals.

Property owners are encouraged to review their financial plans and consider actions like accelerating qualifying expenditures or advancing property transfers to benefit from current reliefs.

These changes could render some FHL businesses unsustainable. If you own FHL properties, it’s crucial to evaluate the impact and prepare for additional tax liabilities. For tailored advice, contact us to ensure your property business adapts effectively to these upcoming changes.