Here, we take a look at what is changing and what it means for those renting out a furnished holiday property.
What are the reliefs being removed?
The following reliefs which are currently available for Furnished Holiday Lets (FHL) will be removed from April 2025:
1. Mortgage interest
Mortgage interest on FHLs is currently treated as a deduction from rental income for income tax purposes. From April 2025, relief will instead be limited to the basic rate of tax currently 20%, so for higher and additional rate taxpayers this will reduce from 40% and 45% respectively.
2. Capital allowances on assets within the let property
FHL will no longer be able to claim capital allowances on plant and machinery for use in a dwelling house.
3. Relevant earnings for pension purposes
FHL will cease to be counted as relevant earnings for pension contribution purposes from April 2025.
4. CGT reliefs
Disposals on or after 6 April 2025 (1 April 2025 for corporation tax) will no longer qualify for any of the reliefs listed below.
- Rollover (replacement of business assets)
- Business asset disposal relief (BADR) (10% tax relief)
- Holdover (gifts of business assets)
- Loans to traders (claims for capital losses)
Anti-forestalling provisions have been introduced such that where there is an exchange of contracts on a disposal from 6 March 2024 but which completes after 5 April 2025 (1 April 2025 for companies), claims to rollover relief and holdover relief will be denied where the transfers are between connected persons.
5. Substantial shareholder exemption
This exemption will also be blocked. It had currently provided an exemption from the liability to corporation tax on the gains generated from qualifying disposals of shares and interests in shares by qualifying companies.
What are your options if you own a furnished holiday let?
Continuing with furnished holiday letting
- For continuing FHL business it may be worth incurring any plant and machinery expenditure before 6 April 2025 (1 April for corporation tax) in order to claim capital allowances, even if these are then carried forward in the pool.
- Additionally, don’t forget that property businesses can deduct the cost of replacing domestic items, which may reduce the impact of lost capital allowances.
- It may also be beneficial to maximise pension contributions before 6 April 2025, while FHL profits still count as relevant earnings. However, this should be considered in the context of your overall tax position with the help of a financial planner.
Selling your furnished holiday letting
- If you are planning to sell a FHL property it may be beneficial to do so before 6 April 2025 in order to obtain BADR and pay CGT at 10%.
- If it is not possible or desirable to sell the FHL property before 6 April 2025, there may be circumstances where it is appropriate to cease the business before the changes and sell the property in the 3 years after cessation. This should retain the entitlement to BADR and the 10% tax rate.
- We recommend avoiding any artificial routes involving the sale of assets to connected parties, such as family members, solely for tax relief purposes. However, genuine disposals should remain unaffected if completed before the changes take effect.
Contact us
If you have a question about the tax on your furnished holiday let, or to arrange for an experienced tax advisor to complete your self assessment returns, please get in touch with us.
Ammad provides personal taxation planning, advisory and compliance services.