We are reliably informed that Summer is coming which, for those who own and rent out holiday lets, should mean that business will start to get busier. However, following the announcement in the March Budget that the preferential tax treatment of Furnished Holiday Letting (FHL) business will be abolished from April 2025 you may be concerned as to how you will be affected.
Few specific details have been released but the following is an indication of what may be expected.
For a property to qualify as a FHL in each tax year certain criteria must be met. The property must be available for let for 210 days per year, be let for 105 days, and longer lets of more than 31 days must not total more than 155 days. The totals do not include any days when you use the property privately.
The tax rules currently permit certain expenses to be allowed against tax. Most notably if you have taken a loan to purchase your holiday let then loan interest can be claimed as a tax allowable expense. From April 2025 this will no longer be the case and it is likely the system will mirror that used for residential lettings where up to 20% of interest paid is allowed as a “tax reducer”. For basic rate taxpayers this will make little difference, but it will have an impact on higher rate taxpayers.
Subject to meeting the required conditions business asset disposal relief is available on the sale of a property. This means capital gains tax is calculated at 10% as opposed to potentially 24% for higher rate taxpayers. There is also the option for rollover relief and gift hold-over relief. If the FHL regime is abolished none of this will be available.
Capital allowances can currently be claimed on plant and machinery for use in the property. This will cease with only an allowance for renewals of certain qualifying assets being available. No details have been provided about any transitional arrangements.
For more information on the potential impact of the changes on your tax position, speak to your accountant.
Carol Draper FCCA
Clifton-Crick Sharp & Co Ltd
