The Chancellor has confirmed plans to abolish the furnished holiday lettings (FHL) tax regime starting in April 2025, with draft legislation now published. This change will remove the tax benefits currently enjoyed by short-term holiday let landlords, bringing their tax treatment in line with those of standard residential landlords, such as buy-to-let properties.
The government expects to generate £35 million in additional tax revenue in 2025-26, rising to £140 million in 2026-27 and £245 million by 2028-29.
From April 2025, income and gains from FHLs will be treated as part of a person’s UK or overseas property business, subject to the same tax rules as other property income and gains. Income tax and capital gains tax (CGT) changes will take effect from 6 April 2025, while corporation tax and chargeable gains will apply from 1 April.
This change will eliminate the favourable tax treatment currently available to FHLs, which require properties to be available for letting for at least 210 days and actually let for 105 days or more per year, and restrict long-term lets over 31 days.
Key changes include:
– The finance cost restriction will limit loan interest deductions to the basic rate for income tax.
– Capital allowances for new expenditure will be removed, replaced by relief for replacing domestic items.
– Access to CGT reliefs for trading business assets will end.
– FHL income will no longer count towards relevant UK earnings for pension relief calculations.
Transitional rules will allow capital allowances for ongoing projects and losses can still be carried forward to offset future property business profits. Reliefs like roll-over relief and business asset disposal relief will be abolished but may still apply in some cases if FHL conditions were met before the repeal.
An anti-forestalling rule, introduced from 6 March 2024, will prevent taxpayers from using unconditional contracts to claim capital gains relief under the old rules. HMRC will need to update its systems and staff to support the changes, with estimated costs around £6 million.
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