Starting from April 2025, the UK's tax treatment of Furnished Holiday Lettings (FHL) is set to change. The UK government's recent decision to repeal FHL's unique tax advantages will alter how income, expenses, and gains from FHL are treated. At GMP Accountants, with our extensive expertise in tax and financial planning, we're here to clarify these changes and offer guidance on preparing for this new landscape, ensuring you can confidently navigate these changes.
Key Changes Affecting FHL
1. Pension Contributions FHL income will no longer be considered "relevant earnings" for pension purposes. This means that owners cannot claim tax relief on pension contributions from FHL income, which may require some to reconsider their pension planning strategies.
2. Finance Costs on Loans The FHL repeal includes stricter regulations on finance costs. From April 2025, tax relief on mortgage interest or other dwelling-related loan expenses will be limited to the basic income tax rate. This restriction, already applicable to residential buy-to-let properties, will now extend to FHL.
3. Replacement of Domestic Items Previously, FHL businesses could claim capital allowances on certain items. Under the new rule, they will now follow the general rules for residential property, allowing deductions only on the replacement costs of items.
4. Jointly Held Property For married couples or civil partners who own FHL property jointly, the income will automatically be split equally between the two, simplifying tax reporting but potentially affecting tax planning.
It's important to be aware of these changes and consider their implications for your tax strategy.
5. Capital Gains Tax (CGT) Adjustments Significant changes are also coming to CGT reliefs for FHL properties:
- Business Asset Disposal Relief (BADR) and Roll-over Relief: Both will be withdrawn, eliminating the tax-deferral advantages previously available to FHL.
- Capital Loss Carry-Forward: Losses incurred in 2024/25 from an FHL can be offset against gains in subsequent years, but within a standard property business.
6. Transition Period Considerations For existing FHL businesses, there are transitional provisions. For instance, if the FHL property is sold within three years of ceasing operations before April 2025, some reliefs may still apply.
How GMP Accountants Can Help
At GMP Accountants, we're committed to helping you adapt to these changes with minimal disruption. Our team can work with you to understand how these new rules impact your specific circumstances and guide you through effective financial planning strategies.