As part of the latest tax reforms, the UK government has now issued draft legislation outlining significant changes for Furnished Holiday Let (FHL) owners. As your local chartered accountants specialising in tax planning and accounting services, we understand how crucial these updates are for landlords and property investors.
In this blog, we break down the key points of the draft legislation and what it means for FHL owners moving forward.
The previous government announced that the Furnished Holiday Let (FHL) legislation would be abolished and it appears Labour are going to stick with this plan and draft legislation has now been released.
The impact of the removal of the legislation is that it has withdrawn the main benefits of a property being taxed as an FHL, for which the key implications of these changes for holiday let owners are:
Previously finance costs such as mortgage interest for an FHL were not restricted to basic rate tax relief, but from the 6th April 2025, they will be.
Previously any rental profits on the FHL’s would be classed as relevant earnings when calculating the maximum pension relief you could obtain on personal pension contributions.
This was a significant concern, as for FHL owners who had previously made a capital allowance claim, there was talk that on the FHL legislation being abolished, there would be a charge on this claim resulting in potentially a significant tax bill. The good news is that this is not going to be the case and I lay out the key transitional arrangements below.
Firstly, for the transitional rules to apply to the property in question:
From the 6th April 2025, any capital allowance or balancing charge arising from what was the FHL will be treated as if it arises from the property which is now classed as a normal property (for tax purposes). So, no future capital allowances will be claimed but no balancing charge will arise unless you sell assets/property on which you previously claimed capital allowances.
Where capital allowances are unrelieved on the 5th April 2025 and are sitting in a pool, the expenditure is to be:
The benefit of the above is that there will be no significant tax charge created by a balancing charge on the abolishment of the FHL regime on the 5th April 2025, which is great news!
If you met the FHL conditions and you sell the property on or by the 5th April 2025 the property should still qualify for BADR and be taxed at 10% subject to the lifetime limit you have left
In certain circumstances BADR may still apply up to 3 years post the abolishment of the FHL regime
Please note that to prevent tax avoidance, the anti-forestalling rule introduced from 6th March 2024 to prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain a capital gains relief under the current rules will continue to apply
It is important to remember that:
At Sidaways, our team of experienced Exeter accountants are here to support property investors, landlords, and business owners navigate the evolving tax landscape. These changes will have a significant impact on FHL owners, and now is the time to plan ahead. We provide:
If you’re unsure how these changes affect you and need expert advice, contact us today for tailored advice.
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Dan Routcliffe
Email: dan@sidaways.co.uk
Tel: 01392 360008
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