News
Holiday Lets Face End of Season with New Legislation
05 Aug 2024
After Jeremy Hunt announced the abolition of the Furnished Holiday Let (FHL) regime in the spring budget, the government has now published the long-anticipated draft legislation outlining the specifics of this change, effective starting April 2025.
What is an “FHL”?
An FHL is a type of rental property that is fully furnished and available for qualifying short-term stays, typically listed on platforms like Airbnb or Booking.com. To qualify as a furnished holiday let, properties must meet the following criteria:
- They must be available for short-term letting to the public for at least 210 days and actually let for 105 days or more in each tax year.
- They should not be used for long-term lets of over 31 days for significant periods.
Previously, FHLs enjoyed several tax advantages over other rental properties, including:
- Full tax relief on mortgage interest and other finance costs;
- Access to capital gains tax (CGT) reliefs to mitigate tax on disposal;
- Tax relief on certain capital purchases through capital allowances.
What Changed?
Concerns that the favourable tax treatment was negatively impacting the property market led the then-Chancellor to announce in March the impending abolition of the FHL regime.
What Does the Draft Legislation Reveal?
The draft legislation confirms several anticipated changes, including:
- Moving forward, income and gains from former FHLs will be treated like all other property income and gains. This means:
- Finance cost restriction rules will limit tax relief on loans connected to the property to basic rate relief.
- Capital allowances will no longer be available for these properties. Instead, it will be possible to claim Replacement of Domestic Items Relief (an existing tax relief available for furnished lettings).
- Capital Gain Tax reliefs like Business Asset Disposal Relief (“BADR”, formerly called “Entrepreneurs’ Relief”), gift relief, and roll-over relief will no longer be available on disposal of former FHL properties.
The draft legislation also outlines the rules for the transitional period:
- Businesses with existing capital allowance pools can continue to claim writing down allowances but cannot add new expenditures to these pools. This alleviates concerns about tax liabilities during the transition.
- Losses carried forward and arising in the future from former FHLs can be offset against profits in the wider property business, both in the UK and overseas. Previously, losses from UK FHLs could only offset other UK FHL profits.
- While certain CGT reliefs will no longer be available, reliefs already claimed will not trigger a tax charge. Additionally, BADR will be available on FHL assets if the FHL business ceases before April 2025 and assets are disposed of within three years of abolition.
- Anti-forestalling rules will apply to prevent obtaining a tax advantage between the announcement and enactment of the measure. The rules restrict CGT relief if an FHL property is under an unconditional contract for disposal between 6 March 2024 and 6 April 2025 but isn’t transferred until after 6 April 2025. An exception is provided for contracts entered solely for commercial reasons, not to obtain tax relief, or where parties to the agreement are unconnected.
How we can help
If you have concerns about these changes and their impact on your business, WR Partners’ experienced tax consultancy team can provide guidance during this uncertain period.
Get in touch with our team to see how we could enhance and protect your financial position. Or if you’d prefer to speak to someone directly just give us a call on: 08000 664 664 or email: hello@wrpartners.co.uk.
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