In the Spring Budget 2024, the Government announced that it will abolish the furnished holiday lettings (FHL) tax regime. The intention of this is to remove the current tax advantage for landlords who let short term furnished holiday properties over those who let out residential properties to longer-term tenants.

This will have a significant impact on those operating holiday let businesses and hit particularly hard on those operating furnished holiday lets as part of a significant business operation.

Office of Tax Simplification recommendations
In November 2022, the Office of Tax Simplification (OTS) produced a report summarising some options for reforming the taxation of let property regime for individuals. This included recommendations for changing or potentially abolishing the special FHL rules.

The OTS recommended the Government consider whether there is continuing benefit in having a separate tax regime for furnished holiday lettings. The OTS commented that if a decision was made to abolish the beneficial tax rules then the Government should consider whether it would be appropriate to introduce a statutory ‘brightline’ test which may allow certain tax benefits to a property business which meets a certain level of trading/activity.

What are the key tax benefits currently available to FHL owners?
• Interest incurred on borrowings is fully deductible against taxable profits

• Beneficial capital allowances rules allowing tax relief for fixtures

• Various capital gains tax reliefs, including potential for business asset disposal relief (10% rate on sale), rollover relief and gifts hold-over relief 

• Profits from FHLs can be treated as relevant earnings for pension purposes

• Income from a FHL held jointly by a married couple or civil partners is not caught by the default 50:50 split for income tax purposes