Furnished Holiday Let (FHL) Regime Abolished
The FHL regime currently available has several tax advantages for landlords of qualifying short term holiday lets. However, from April 2025 the FHL regime is being abolished.
As a brief overview, the main tax advantages of a property qualifying as an FHL are as shown below, along with a summary of the corresponding rules which are currently available for ‘standard’ rentals i.e. rentals that do not qualify as an FHL:
| FHLs | ‘Standard’ rentals | |
|---|---|---|
| Mortgage interest | Mortgage interest can be deducted against profits. | The taxpayer will receive a deduction against due equal to the mortgage interest x 20%. Therefore, higher or additional rate taxpayers will receive less tax relief. This method also means reportable profits are higher, which could cause the taxpayer to reach certain thresholds earlier, or affect tax credits etc. |
| Capital allowances | Capital allowances are available which means FHLs can receive a deduction for the initial purchases of relevant items against profits e.g. furniture, white goods. | Taxpayers will only be able to claim for the cost of replacing these items, with no deduction available for initial purchases. This is a particular disadvantage when first getting the property available to be let out, as a significant amount of expenditure is likely to be incurred without any availability for tax relief. |
| Profit split | Spouses or civil partners who jointly own an FHL can chose to split the profits in a ratio of their own choice. This can mean more profits can be allocated to the lower earner, thereby savings tax. | Spouses or civil partners who jointly own a standard rental can only generally split profits 50/50. There are ways to change the split, however, it is less flexible and involves incurring legal fees to do so. |
| Capital Gains Tax (CGT) | There are a number of CGT reliefs available for qualifying FHLs, these being: Business Asset Disposal Relief, Business Asser Rollover Relief, Gift Hold-over Relief | No CGT reliefs are generally available. |
| Relevant earnings | Profits count as relevant earnings for pension contribution purposes. | Profits do not count as relevant earnings for pension contribution purposes. |
The change would likely make Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) easier to design, however, it will give rise to its own set of complications.
Draft legislation will be published in due course and include an anti-forestalling rule. This will prevent the obtaining of a tax advantage in advance of the enactment of the legislation.
Capital Gains Tax Rates on Residential Properties
The current rate of Capital Gains Tax (CGT) on residential properties is 18% for any gains falling within the taxpayer’s basic rate band, with any gains above this being taxed at 28%.
No change is being made to the lower rate, however, with effect from 6 April 2024 the government is reducing the higher rate from 28% to 24%.
Both of these measures may be being introduced to improve the quantity of housing stock available to purchase for those wishing to do so.
If you have any questions for our Tax experts as a result of this Budget, please contact us on 01242 776000 or tax@randall-payne.co.uk.
