In the Spring Budget 2024, the Government announced changes that will affect individuals who own a Furnished Holiday Let (FHL), effective from 6 April 2025.
From this date, furnished holiday letting businesses will be treated in the same way as other property rental businesses and will therefore lose the following tax advantages that they currently have:-
- The ability to claim capital allowances on expenditure on certain qualifying assets for a furnished holiday letting business.
From 6 April 2025, capital allowances will no longer be allowed, as the relief is withdrawn but instead, the property business may be able to claim a deduction against the rental profits for the cost of replacing domestic items.
- Claiming a full deduction for mortgage interest incurred on loans for the purpose of a furnished holiday letting business.
From 6 April 2025, interest will cease to be a deduction against rental profits and instead, relief will be by way of a 20% tax credit from the individual’s income tax liability. For higher and additional rate taxpayers this means that there will be a reduction in the amount of tax relief they can obtain.
- Capital gains tax on the disposal of a furnished holiday letting business by an individual may currently qualify for business asset disposal relief (BADR). Gains on disposals, up to a lifetime limit of £1m, would be taxed at the capital gains tax rate of 10%.
From 6 April 2025, any gains will be subject to the capital gains tax rate of 18% for gains that fall within the basic rate band and 24% for gains falling within the higher and additional rate bands.
- Tax relief for pension contributions made by an individual. An individual is able to make pension contributions but is limited to the higher of £3,600 (gross) or 100% of net relevant earnings. Currently, the profits arising from a furnished holiday letting business are included as part of net relevant earnings.
From 6 April 2025, the profits from a furnished holiday letting business will no longer be included in net relevant earnings. You may need to speak to a pension advisor if your contributions are normally based on these profits.
At Lambert Chapman LLP we can provide guidance in the changes of these rules and how they will impact you and your taxes. Please contact the tax team and we will be happy to help.
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.