Upcoming Furnished Holiday Let (FHL) tax changes

The Government have now drafted legislation for Furnished Holiday Lets, with new rules coming into effect as of 6^th April 2025. These were confirmed to go ahead on 29^th July 2024.

There are eight main changes to be aware of:

1. Tax relief on Buy To Let loan interest

The full cost of the interest paid will be disallowed, so you will no longer be able to deduct the full interest you paid from your taxable income, but you can reduce your tax by 20% of the interest amount.

2. Pensions

Currently FHL (Furnished Holiday Let) profits are treated as ‘relevant earnings’ (income such as salary or profits, that allow you to get tax relief when contributing to a pension) with regards to pension contributions.

From 6^th April 2025 this will no longer be the case. Pension contributions post 6^th April 2025 will no longer be relevant earnings, and therefore will restrict the amount of relief available for pension contributions.

3. Capital allowances

Capital allowances can currently be claimed at 100% for FHL properties. For all new expenditure from 6^th April ‘25, the ‘replacement of domestic items relief’ will be claimable instead.  This is for replacing items but not for improvements or initial purchase.

If you have a capital allowances pool for your Furnished Holiday Let (FHL), you can continue to claim writing down allowances after 6^th April 2025.

4. Losses

Currently losses can only be offset against FHL profit. The changes post 6^th April 2025 will allow for offset against general rental income, to ensure losses can be utilised in future years.

5. CGT (Capital Gains Tax)

FHL properties are currently treated as a trade. From 6^th April 2025, CGT (Capital Gains Tax) reliefs for FHL properties will no longer be available, including the following:

• Business Asset Disposal relief
• Business Asset Rollover relief
• Gift relief
• Relief for loans to traders

6. Jointly owned properties

Currently joint rental income from the profit is not caught by the default 50:50 rule, and you are able to split the profits under a different percentage. From 6^th April ’25, this is no longer allowable and will revert to the 50:50 split, unless an S.837 ITA 2007 election is made.

7. Corporation Tax

The substantial shareholding exemption will no longer be available from 1^st April 2025.

8. Anti-forestalling rule*

In general terms, these will apply if there is an exchange of contracts on a disposal from 6^th March 2024, but which completes after 5^th April 2025. Furnished Holiday Let property owners need to consider their options now to undertake any tax planning prior to 6^th April 2025.

*The anti-forestalling rule prevents people from rearranging their finances to avoid new taxes before those taxes take effect.

For previous information about Furnished Holiday Lets and Business Asset Disposal Relief, click here: whyfield.co.uk/news-careers/fhl-and-badr

If you have any questions, give us a call on 01872 267 267, email us at contact@whyfield.co.uk, or message us on WhatsApp 0777 49 39 111