The end of Furnished Holiday Lettings

The recent Budget announcements will bring an end to the tax advantages afforded to the owners of Furnished Holiday Lettings (FHL) and set them apart from the owners of normal residential properties.

At present, qualifying FHL’s provide a number of tax advantages:

• Unrestricted tax relief for mortgage interest
• Entitlement to claim capital allowances, including on initial purchases
• Possibility of making higher pension contributions
• Reduced rate of CGT on sale
• A FHL which is held jointly by a married couple or civil partners is not applied to the default 50:50 split for income tax purposes

What does the proposed change mean for you?

Tax relief for mortgage interest will be restricted to the basic rate of tax. This can have multiple implications, not only potentially pushing your income into a higher tax bracket, but also impact on things like eligibility to claim certain benefits.

Claims for capital allowance will no longer be possible, and initial purchases of furniture and fixtures will not be tax deductible, only their replacement.

There will be changes for pension contribution calculations with FHL profits considered to be “net relevant earnings” for pension purposes whereas residential lettings are not, which may lead to a reduction in the maximum contributions allowing for tax relief.

Sales of FHLs before 5 April 2025 will still be eligible for beneficial tax relief, which enables a gain to be taxed at a rate of 10%. Sales after this date will be charged at either 18% or 24%, under current proposals.

If a married couple has been splitting their FHL income at anything other than a 50/50 but own the property under a joint tenancy agreement, they will need to consider changing to tenants in common and making an election to HMRC.

FHL owners should be taking the next 12 months to ensure they are aware of how the changes will affect them, and ensure any appropriate action is taken in good time.

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.