As part of the recent Spring Budget, the Government announced that it would be scrapping tax reliefs for furnished holiday lets (FHL), starting from 6 April 2025.
The FHL tax regime currently allows beneficial income tax, with no restriction on the deduction of interest and finance costs related to the property. Also, when selling an investment property, a holiday let is classed as a business asset and will therefore potentially qualify for three types of Capital Gains Tax (CGT) reliefs, which are; Business Asset Rollover Relief (BARR), Business Asset Disposal Relief (BADR), and Gift Hold-Over Relief.
However, starting in April 2025, these tax concessions will be lost and all interest on borrowings will no longer be fully deductible against taxable profits and will instead have to be claimed as a tax reducer, at 20% of the mortgage interest costs, as with standard BTL properties. This will therefore exclude these costs from being eligible for higher rate tax relief. There will also be no tax relief for fixtures and fittings, and profits gained from FHLs will no longer be treated as relevant earnings for pension purposes.
By levelling the playing field with traditional BTL investors, the Government has made it very clear that it would rather have more long-term residential properties for local people than homes available to let on a short-term basis in tourist areas.
What do HMRC consider as a furnished holiday let?
According to HMRC’s guidance, a furnished holiday let is classed as furnished commercial property situated in the UK that must be available to let for at least 210 days (about 7 months) in the year. It must be commercially let as holiday accommodation for at least 105 days (15 weeks) in the relevant period. Guests must not occupy the property for 31 days or more as long-term occupancy is forbidden.
The Business Asset Disposal Relief (BADR) that is available for another year means that a landlords selling a FHL will pay CGT at a rate of 10% on the gains made. However, a year from now FHL owners will be subject to standard residential capital gains tax rates. This rate will be 18% for gains within the basic rate band and 24% thereafter.
Also, FHL properties in England will require planning permission and Housing Secretary Michael Gove says the new law will require people letting out their property as a short-term holiday home to seek permission from the local council under a new ‘use’ category. The crackdown would not apply to people renting out their main home for 90 days or less in a year. A mandatory national register would be set up providing local authorities with information on short-term lets in their area, the Government said.
Scotland and Northern Ireland already have short-term let licensing schemes in operation, and Wales is introducing a statutory licensing scheme for all visitor accommodation providers.
