What does the abolition of the furnished holiday lettings (FHL) regime mean for you?

The abolition of the furnished holiday lettings (FHL) regime entails the loss of several crucial tax benefits for individuals operating FHL businesses. 

The March Budget announcement by the Chancellor aims to stimulate housing market activity and address housing shortages, but the alterations to the FHL regime raise questions about fairness. Many FHL owners depend on their businesses as their primary source of income, and these changes place them at a significant disadvantage compared to larger entities like hotels, which enjoy tax deductions for numerous expenses that individuals will no longer qualify for. This raises concerns about whether the playing field is truly level or tilted in favour of big business. 

Based on the information made available the anticipated impact of these changes is significant, potentially affecting the holiday letting industry and its estimated 50,000 jobs. 

As it stands, interest on loans for FHL businesses is deductible from rental income when calculating taxable profits as the operation is treated more like a business. However, starting from April 6, 2025, interest deductions for businesses operated by individuals will cease, replaced by a 20% tax credit against the individual’s tax liability in the same way buy to let properties (BTL) are taxed. For higher rate taxpayers, this represents a reduction in tax relief to the 20% rate. 

Furthermore, as trading assets, capital gains on the disposal of FHL assets currently qualify for business asset disposal relief, with gains up to £1 million taxed at a rate of 10%. Again, from April 6, 2025, these gains will be subject to Capital Gains Tax rates of 18% or 24%, depending on the taxpayer’s income band. 

Another major benefit of FHLs is the current ability to claim CGT rollover relief and capital allowances for qualifying assets will be withdrawn for FHL businesses from April 6, 2025. Similarly, tax relief for pension contributions, currently based on profits from FHL, will require reassessment after this date. 

These changes are expected to diminish the appeal of owning holiday lets and incentivise property sales, this will potentially lead to an increase in property listing, stamp duty, CGT and increase availability of housing. However, will this translates into increased availability of rural homes for purchase or long-term residential lettings remains unknown. 

Are these changes beneficial and fair, who knows, but we can probably be sure this won’t be the only change in the next 12 months!

If you think you are affected by these changes, please get in touch to speak with our team of tax experts. Call us on +44 (0)23 8061 3000 or email basingstoke@langdownsdfk.com.