Do you own a holiday home?
In the 2024 Spring Budget, Chancellor Jeremy Hunt announced plans to scrap the furnished holiday lettings (FHL) tax regime. The move has significant implications for landlords, second homeowners and property investors who may have turned to FHLs as an alternative to traditional buy-to-let properties.
By introducing the change, the government is looking to level the playing field between short-term and long-term lets, ensuring more properties become available for local residents. It means that with effect from April 2025, taxpayers will no longer be able to take advantage of the FHL tax regime by treating their property business as a furnished holiday let.
What qualifies a rental property as an FHL?
To qualify as an FHL, a property must meet with certain conditions.
It must:
- Be located in the UK or within the European Economic Area.
- Be furnished – with sufficient furniture for normal occupation.
- Be commercially let – i.e., you must be able to demonstrate you intend to make a profit from letting the property.
- Be available to let out for a minimum of 210 days in a year.
- Be let out for a minimum of 105 days in a year.
It must not:
- Be let to long-term tenants for more than 155 days in a year.
- Be occupied by tenants for 31 days of the tax year.
What’s changing?
Currently, anyone owning a property that meets the above criteria and qualifies as an FHL can benefit from a number of tax advantages, including:
- Rental income from an FHL can be split between couples who are married or in a civil partnership to help mitigate tax liability. This is not something couples owning traditional buy-to-let properties are able to do.
- FHL owners can offset their tax liability by deducting various expenses relating to their property such as maintenance costs, insurance and management fees.
- Because FHL properties qualify for Business Asset Disposal Relief, when an owner sells a property, they only have to pay Capital Gains Tax at 10% – rather than 18% or 28%.
- FHL owners can claimcapital allowances on part of the purchase price paid for the property or the development costs to build or refurbish it.
But from April 2025, these tax benefits will no longer be available to landlords.
What should you do if you own an FHL?
The changes take effect from April 2025, so if you’re an FHL landlord, there isn’t much time left to consider and adjust your strategies.
If you’re affected, you need to consult with your accountant or tax advisor to assess how financially viable your properties will be when the tax advantages disappear. You’ll have to consider whether it’s still worth your while to keep them as holiday lets, or whether it’s time to explore other options, for example, disposing of properties, looking into traditional buy-to-let properties or alternative investment opportunities.
How will the upcoming election impact FHL legislation?
The short answer is that we can’t be sure. When the abolition of the FHL regime was announced, the government promised that draft legislation would be published ‘in due course’. This has yet to happen, and the news that a general election will now take place on 4th July has created some uncertainty around the issue. We’ll have to wait until after this date to see if the plan becomes law and to get clarity on the details if it does.
Let Inca Review Your Position
Whatever the outcome of the election, it looks as if the FHL landscape is changing. If you have investments in this sector, you need to consider the long-term rental market and how it aligns with your goals.
Inca can review your position and work with you to navigate the upcoming reforms. We can provide advice on how the changes will impact you, assist you with strategic planning and help you to make informed decisions about any properties you own.
Contact one of our advisors today for an initial discussion. Call us on 01235 868888 or email us at [email protected].
