The planned abolition of favourable tax treatment for furnished holiday lets from April next year is prompting many owners to consider whether now may be the right time to sell or pass on their property to family members.

On 29 July the Government published the draft legislation to abolish the Furnished Holiday Letting (FHL) tax regime. Once enacted, this will mean that from 6 April 2025 individuals operating FHL businesses will lose a number of key tax benefits.

1. Currently, interest incurred on loans for the purpose of a furnished holiday letting business are treated as a deduction from rental income in calculating taxable profits of the business. From 6 April 2025, interest for businesses operated by individuals will cease to be an allowable deduction and relief will instead be given as a 20% tax credit from the individual’s tax liability. For 40% and 45% rate taxpayers, this will mean a reduction in tax relief for interest to the 20% rate.

2. As trading assets, capital gains on the disposal of furnished holiday letting assets by individuals currently may qualify for business asset disposal relief: where they qualify, gains up to the lifetime limit of £1m would be taxed at a rate of 10%. As investment assets, from 6 April 2025 such gains will be subject to the CGT tax rate of 18% for profits within the standard rate band or 24% for profits within the higher rate band under current rates. If there is a change to the CGT rate announced in the Autumn Budget (30 October) then these rates may increase.