How FHL abolition will impact UK holiday let owners

How FHL abolition will impact UK holiday let owners

9:40 AM, 7th March 2024, About 2 months ago 2

Text Size

Landlords and owners operating furnished holiday lettings (FHL) may still be reeling from Chancellor Jeremy Hunt’s announcement in the Budget that tax relief will be abolished from 6 April 2025.

Now tax accountants BDO have revealed what the financial impact will be from next year.

Paul Falvey, a tax partner at the firm, said: “While owners of furnished holiday lettings are set to lose some significant tax benefits from April 2025, those who choose to sell their property after 6 April 2024 will be able to benefit from the reduction in the higher rate of CGT (capital gains tax) for residential property gains which is due to drop from 28% to 24%.

“These tax changes make it less attractive to own holiday lets and more attractive to sell them.”

He adds: “The chancellor is clearly hoping that this will lead to significant numbers of property owners putting their holiday homes on the market in the 2024/25 tax year.

“Whether this does lead to a significant increase in the availability of rural homes to buy or longer-term residential lettings remains to be seen.”

The FHL tax relief situation

To help understand the FHL tax relief situation, BDO points out that:

  • Currently, interest incurred on loans for the purpose of a furnished holiday letting business are treated as a deduction from rental income in calculating taxable profits of the business. From 6 April 2025, interest for businesses operated by individuals will cease to be a deduction and relief will instead be given as a 20% tax credit from the individual’s tax liability. For higher rate taxpayers, this will mean a reduction in tax relief for interest to the 20% rate.
  • As trading assets, capital gains on the disposal of furnished holiday letting assets by individuals currently may qualify for business asset disposal relief: where they qualify, gains up to the lifetime limit of £1m would be taxed at a rate of 10%. As investment assets, from 6 April 2025 such gains will be subject to the CGT tax rate of 18% for profits within the standard rate band or 24% for profits within the higher rate band.
  • Gains on the disposal of a furnished holiday let would currently qualify for CGT rollover relief such that, if a replacement qualifying asset is purchased, a claim can be made to deduct the capital gain from the tax base cost of the new asset, thereby deferring the tax point of the gain. Such relief is only available for investment properties in cases of compulsory purchase.
  • Expenditure on qualifying assets for a furnished holiday letting business are currently eligible for capital allowances. As a letting of residential investment property, such relief will be withdrawn from 6 April 2025 although it is likely that such businesses may instead be able to claim a deduction from profits for the cost of replacing domestic items.
  • Tax relief for pension contributions by individuals is currently limited to contributions of the higher of £3,600 or 100% of net relevant earnings. Currently, profits from furnished holiday lettings are treated as relevant earnings. From 6 April 2025, therefore, those individuals who rely on profits of a furnished holiday lettings business to support obtaining tax relief for their pension contributions may need to seek appropriate advice.

For more information about landlord tax and incorporation, contact Property118’s experts:

Book a Landlord Tax Planning Consultation

  • Hidden
  • Hidden
    Please provide an overview of your circumstances and what you are looking to achieve.
  • For the avoidance of doubt, we are able to assist landlords who own properties in England, Northern Ireland, Scotland and Wales. Where you reside is not a problem, even if you are resident outside the UK.
  • Landlord Tax Planning Consultancy is the core business activity of Property118 Limited (in association with Cotswold Barristers).

Share This Article


Comments

Seething Landlord

10:30 AM, 7th March 2024, About 2 months ago

It looks as though those who switched from normal tenancies to FHLs to avoid the impact of S24 are going to find that they jumped out of the frying pan into the fire.

Reluctant Landlord

13:37 PM, 7th March 2024, About 2 months ago

Reply to the comment left by Seething Landlord at 07/03/2024 - 10:30
with what has clearly been perceived as a 'large jump' of LL's doing this and for the reason deemed as for tax saving purposes, only gives justification to the government to be seen to now 'crack down' on it.

The government only ever gives you enough rope so they can hang you from it later... Great for showing (voting) spectators eager to see a lynching of those seen to be 'playing the system'.

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership

or

Don't have an account? Sign Up

Landlord Tax Planning Book Now