Furnished Holiday Lettings: Confirmation Of Changes Coming

We have known since the March 2024 Budget that the abolition of the beneficial rules relating to Furnished Holiday Lettings (FHL) were to change from April 2025. Now however, we have the draft legislation following its publication on 29 July 2024.

The effect of the changes will mean that for both individuals and companies:

• All finance costs will be restricted as with all normal residential lettings.
• You will no longer claim capital allowances on new expenditure but claim for the replacement of domestic items. For items already held, then the capital allowance regime will continue as normal.
• There will no longer be beneficial Capital Gains Tax treatment on sales. So any future gains will be taxed at the relevant residential gains rates of 18% or 24% and not the beneficial rates with claims allowed under Business Asset Disposal Relief allowing for a rate of 10%.
• The income arising from the lettings will no longer qualify as relevant UK earnings when calculating the maximum pension relief.

There is further confirmation of some of the more complex capital gains reliefs that had previously been available.

For example, under current rules FHL properties are eligible for:

• Roll-over relief,
• Business asset disposal relief,
• Gift relief,
• Relief for loans to traders,
• Exemptions for disposals by companies with substantial shareholdings.

After the changes eligibility for the reliefs will cease. Where criteria for relief includes conditions that apply in a future year these specific rules will not be disturbed where the FHL conditions are satisfied before repeal.

In addition to business asset disposal relief, where the FHL conditions are satisfied in relation to a business that ceased prior to the commencement date, relief may continue to apply to a disposal that occurs within the normal 3-year period following cessation.

Once the changes are fully in place, the former FHL properties will form part of the person’s UK or overseas property business. These will be subject to the same rules as non-furnished holiday let property businesses.

Get In Touch

For more information or advice on Furnished Holiday Lettings, contact your local Whitings office today.

Disclaimer - All information in this post was correct at time of writing.