In the Spring Budget 2024, the Conservative Government announced changes to the Furnished Holiday Let (FHL) regime from 6 April 2025. We posted an update at the time (please see: Furnished holiday let property changes | Lambert Chapman). This provided a summary of what we knew at the time, but further details have now been released.
With the removal of capital allowances on new expenditure, the existing pool will remain, and annual writing down allowances will continue to be deductible until such time as the pool becomes small and a full write-off can be claimed. As the FHL trade is not ceasing on 6 April 2025, there is no balancing adjustment made at that point but going forward, new asset purchases will be claimed under the replacement rules. However, where assets are sold that were included in the pool, a balancing adjustment will be reportable.
The limits for VAT reporting will not be affected by these changes and the potential ability to claim Business Property Relief under the inheritance tax rules, may still be available. However, this is a very restricted area and very few current FHLs are currently eligible.
Where a FHL has commenced part-way through the 2024/25 tax year, in order for the initial period to be eligible for Furnished Holiday Lettings Relief on the 2024/25 Tax Return, you will still need to look at the first 12 months of trading to ensure that the rules are achieved.
Currently, FHL income can be allocated between joint owners, in parts that are not equal with no specific application. Where normal rental properties are held jointly or as tenants in common, a Form 17 has to be submitted for tax purposes. This will now be true for FHLs and so this will need to be in place before the end of the tax year to continue having the income split in an amount other than 50/50.
Where FHLs are sold, it has previously been possible to access the Business Asset Disposal Relief allowing gains to be taxed at 10% or, going forward, 14% or 18%. It will still be possible to claim this lower rate of tax, where there is an actual cessation of all FHL lettings with no intention of starting up again and the disposal is within 3 years. This may be a useful option if owners no longer wish to be taxed under the normal rental rules as the big implication will be the removal of the ability to claim 100% mortgage interest relief as this will now only be a 20% tax credit.
If you have a furnished holiday let and wish to discuss the implications, please do get in touch with our tax team.
Disclaimer
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.