Furnished holiday lets currently have different tax rules to long term letting. The Chancellor announced in the Spring Budget that the furnished holiday letting (FHL) scheme would be abolished from 6th April 2025; the purpose of this being to simplify taxation to bring it in line with other property taxes.
A quick reminder of what the requirements for an FHL is that:
It is a furnished property
It is available for commercial holiday lettings 210 days of the tax year
It is booked for at least 105 days of the tax year
And the property must not be let for periods of longer-term occupation (normally 31 days or more) for more than 155 days during the year.
The current tax rules allow for the following:
You can claim capital allowances to deduct costs of capital purchases against income
The profits from FHL can count towards relevant earnings for your pension
the mortgage interest can be claimed 100% against income
Upon selling an FHL, you can claim business assets disposal relief - a CGT rate of 10% (up to a lifetime limit of £1m) and business asset roll over relief - deferring CGT when you use the sales proceeds to invest in other allowable business assets.
With these rules being abolished from 6th April 2025, there are substantial tax changes for those running FHLs.
An anti-forestalling rule will prevent obtaining tax advantages through the use of unconditional contracts to obtain capital gains relief under FHL rules. This came into place on 6th March 2024, however we are currently waiting on draft legislation and detailed guidance to be published.
If you want advice on how this could affect you, then please do get in touch to discuss your position. If you'd like to be kept updated on these and further changes then please register your details on the website.