The UK government will be abolishing the Furnished Holiday Lettings (FHL) tax regime. This will have a sizeable impact on property owners. This will take effect in April 2025, so it is essential that anyone affected understands their situation and, if possible, seeks advice on the best way to respond to the changes.

But let’s go back to basics. What is the FHL tax regime?

What is the Furnished Holiday Lettings tax regime?

Until April 2025, Furnished Holiday Lettings are subject to specific tax benefits that are not given to other properties for long-term residential letting. These (soon to be former) benefits are:

• Enabling owners to deduct finance costs (such as mortgage interest payments)
• Business Asset Disposal Relief (BADR), which reduces the Capital Gains Tax owed to HMRC when certain qualifying assets are sold with a gain.
• Profits from Furnished Holiday Lettings count as relevant earnings with regards to pension contributions.
• Making capital allowances available for furniture, fixtures and other items.

Again, these benefits are set to end as the new tax year starts.

How will this be changing from April?

Following the scrapping of the Furnished Holiday Lettings tax regime, these properties will be more aligned with other residential rental properties. That said, these changes may have an enormous impact on both cash flow and the owner’s tax position.

Here are the main changes that you should be preparing for:

• Capital Gains Tax will be payable at the higher residential rate of 24% due to the loss of Business Asset Disposal Relief (BADR).
• Mortgage Interest Relief (deduction) will no longer be fully deductible against rental income. Instead, it will be treated the same as other residential property businesses qualifying only for the 20% basic rate tax credit. This means higher and additional rate taxpayers will lose out the most.
• Pension Contributions may need to change, as income from your Furnished Holiday Lettings will no longer qualify as relevant earnings for pension tax relief.
• Capital Allowances will no longer be claimable on furniture, fittings and other equipment used for the property. The only deductible costs will be those related to replacing items.

What has the government said about it?

In their November 2024 publication “Abolition of the furnished holiday lettings tax regime”, the government said:

“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.”

What should you do?

If you are a property owner set to be impacted by these changes, there are some important steps you should consider.

• First, you must ensure you fully understand your new position. This means carefully reviewing the new rules and how they apply to you, particularly your finances and tax situation. Your accountant can help you understand the big picture of this more clearly.
• It may also be worth evaluating the profitability of your existing FHL, as the removal of tax advantages may affect its financial viability.  
• You might benefit from transitioning to long-term residential letting or boosting your income through other means (such as pricing changes or increased occupancy rates).

If you are a FHL owner who is concerned about the impact of these changes, send me a message and we can take a closer look at your situation, both now and post-April.