An update on furnished holiday lettings

“To qualify as a furnished holiday let, properties:

• must be available for short-term letting to the public for 210 days and actually let for 105 days or more in each tax year.
• should not be used as a long-term let of over 31 days for significant periods.

The distinction for a furnished holiday let was introduced in 1984 and provided different and more beneficial tax treatment for short-term lettings within the property investment sector. The argument is, by repealing the beneficial tax treatment for furnished holiday lettings promotes fairness by removing the tax advantages that furnished holiday let landlords have over other residential property landlords”.

The abolition of the furnished holiday lettings (FHL) regime was announced in March 2024. However, the new government has now released further details. As an owner, what should you know about the rules and transition? Partner Kenny Adamson updates below.

The furnished holiday lettings (FHL) status applies to properties which meet minimum availability and occupancy criteria. A qualifying FHL is treated as a trade for a number of tax purposes, and enjoys a number of advantages as a result.

Perhaps most importantly:
• The ability to claim capital allowances for new items, meaning relief can be obtained for the cost of furnishing a property, not just replacing domestic items.
• Capital gains tax (CGT) reliefs are available on a disposal of the business and/or business assets:

• Business asset disposal relief (BADR).
• Gift holdover relief for business assets.
• Rollover relief for replacing business assets.

These breaks will cease after 5 April 2025 for individual clients. However, the policy note does detail some helpful transitional rules.

Pools
A big concern was that the FHL status ceasing would require a balancing charge under the capital allowances rules. Thankfully, the policy note confirms that this will not be the case. Any expenditure in a pool as at 5 April 2025 will continue to attract writing down allowances.

Cessation
BADR will also be available on associated disposals of assets, i.e. properties, where an FHL business ceases prior to 6 April 2025, meaning there will be a window to secure relief if you don’t wish to continue the letting business.

Loan Interest
Applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax. Loan interest paid will not be an allowable deduction against the profits of the business. A tax credit will be deducted from your over all tax bill equal to 20% of the loan interest paid.

Carry Forward Losses
An individual may have losses to carry forward from their Furnished Holiday Let Business after the changes coming into effect on 6 April 2025. Please note that losses generated from the furnished holiday let business will be permitted to be carried forward and be available for offset against future year’s profits of either the UK or Overseas property business as appropriate.

There is also a statement regarding CGT reliefs generally that says, “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”.

It is not immediately obvious where this would apply, and the document does not elaborate further.

IN SUMMARY
The end of the FHL regime will not trigger large capital allowances charges as was first feared. Owners will also continue to relieve any pooled expenditure via writing down allowances.

If you would like to discuss this further with Kenny or one of the team, please contact us directly.