The new Labour government is changing rules that apply to properties let as furnished holiday accommodation. The Chancellor, Rachel Reeves, plans to abolish furnished holiday let (FHL) rules from April 2025.
This will hugely impact FHL landlords, removing the tax advantages they have enjoyed compared with other property businesses. Four beneficial rules will be removed, meaning from next April, FHL landlords will no longer be able to:
- have full relief for loan interest. Instead the relief is restricted to basic rate tax.
- apply capital allowances rules for new expenditure,
- access reliefs from taxes on chargeable gains for trading business assets, or
- include FHL income within relevant UK earnings when calculating maximum pension relief.
This is a massive change.
Ultimately, FHL properties are to be treated the same as non-furnished holiday accommodation. Both property types will form part of an individual’s UK or overseas holiday business. Profits and losses of all the properties in that business will be amalgamated.
Transition rules regarding capital allowances and losses on FHL properties will apply:
- FHL property businesses will be eligible for ‘replacement of domestic items relief’ in line with other property businesses. Existing capital allowance pools can continue to utilise writing down allowances.
- Currently, FHL losses are carried forward and applied against future profits of the same FHL business. Any FHL losses to be carried forward when the new rules begin can be set off against future years’ profits of a person’s holiday property business (UK or overseas).
Existing rules allow eligible FHL properties several reliefs together with exemptions for disposals by companies with substantial shareholdings. The changes will see relief eligibility stop. However, where criteria for a relief include conditions that apply in a future year these specific rules will remain in place.- If the FHL business ceased trading prior to the implementation of the new rules, relief may continue to apply to a property disposal occurring within three years following business cessation.
- From 6 March 2024 landlords will not be able to use unconditional contracts to retain capital gains tax relief available with current FHL rules. This was introduced as an anti-forestalling rule.
There are a lot of changes to keep up with!
Are you letting holiday properties?
Let’s explore how these changes affect you. Contact the friendly experts at re:accounts in Stevenage for an informal discussion with a fabulous cup of coffee.
