Clean, well furnished room in a beach side property.

Sep 27 2024

Legislation changes impacting furnished holiday lets

The main development is that the abolition of the FHL income tax and CGT relief breaks, originally announced in the March 2024 Budget, have now been included in the draft Finance Bill 2024-25. This will have a variety of effects on landlords and businesses that own furnished holiday lets, potentially requiring an update in budgeting and forecasting. In this piece, we break down the changes to legislation and what they mean for FHLs.

What is the definition of a furnished holiday let?

A furnished holiday let (FHL) is a commercial property that’s furnished and located in the UK or the European Economic Area. Other qualifying conditions include:

It is solely used for commercial purposes (in other words, to make money).
It is available to let for at least 210 days of the year.
The property contains sufficient furniture for regular occupation.
Consecutive individual lettings in excess of 31 days must not total more than 155 days per year.

If you have multiple FHLs in the UK, they are each taxed as a single UK FHL business. As such, you must keep separate records for each. Note that this is intended to prevent the losses from one FHL being used against profits from another. By making use of our bookkeeping services, you will be prepared to adapt to any tax changes by having access to accurate records.

Upcoming tax changes for furnished holiday lets

Firstly, it should be noted that, although there are some transitional rules for FHLs, the main premise will come into effect from 1^stApril 2025 for corporates and from 6^thApril 2025 for individuals and trusts. The legislation will affect the following four key areas in relation to FHLs:

Loan interest relief will be restricted to a 20% basic rate tax credit as opposed to tax relief at the taxpayer’s marginal rate.
The removal of the capital allowances rules for new expenditure whilst allowing for the replacement of domestic items relief.
Withdrawing access to capital gains tax relief for trading business assets.
The letting income no longer being treated as relevant earnings when calculating maximum pension relief.

Following these legislative changes, there are certain factors the team at Jan McDermott Chartered Accountants has found worth mentioning:

Existing FHL businesses can continue to claim expenditure on ongoing capital allowances on the pool post April 2025, although not in respect of new expenditure.
Losses on FHL properties from pre-April 2025 can be carried forward and used against other UK or overseas property business income.
An anti-forestalling rule applies from 6^thMarch 2024 to prevent the use of unconditional contracts to obtain capital gains tax relief under the current FHL rules.
Under current rules, FHL properties are eligible for roll-over relief, business asset disposal relief, gift relief, relief for loans to traders, and exemptions for disposals by companies with substantial shareholdings. After the changes, eligibility for the reliefs will end.
However, where the conditions for accessing relief apply in a future year, these specific rules will not be disturbed where the FHL conditions are satisfied before repeal.
In relation to business asset disposal relief, where the FHL conditions are satisfied in relation to a business that ceased prior to the 6^th April 2025, relief may continue to apply to a disposal that occurs within the normal 3-year period following an end of activities.

Wirral accountants specialising in tax

Making sense of changes in legislation, particularly if it affects tax, can be stressful. At Jan McDermott Chartered Accountants, we offer fixed fees based on the services you need. This means not only are you getting expert financial support and recommendations, but there are also no hidden costs associated with our financial services. We operate as accountants for landlords, sole traders, limited companies, and more. Get in touch with the team if you have any questions about what we can do for your business.