Furnished Holiday Let Tax Changes

19 June 2024

If you’re looking for an expert on how to navigate the tax changes to Furnished Holiday Lets, be sure to contact the team at RRL on 01872 276116 or 01736 339322 or post@rrlcornwall.co.uk www.rrlcornwall.co.uk.

The furnished holiday let (FHL) regime has long been favoured by property owners for its many tax advantages compared to long-term letting. Here’s a breakdown of the benefits and the significant upcoming changes that could impact FHL owners:

Key Tax Benefits of Furnished Holiday Lets

  1. Capital Gains Tax (CGT) Advantage: FHL properties can potentially qualify for a beneficial CGT rate of 10% upon disposal, which is significantly lower than the higher rates applied to residential property disposals.
  2. Capital Gains Gift Holdover Relief: This relief allows for the gifting of FHL properties without immediate CGT liability, as gifts are typically treated as sales at market value for CGT purposes.
  3. Income Tax Relief: Owners can claim substantial income tax relief on large portions of the property purchase price and the cost of furnishings.
  4. Finance Costs Relief: Unlike other residential lettings, FHLs do not have restrictions on higher-rate income tax relief for finance costs like mortgage interest.
  5. Flexible Profit Sharing: Joint owners can flexibly share profits year-on-year without being taxed strictly according to ownership percentages.
  6. Relevant Earnings for Pensions: Profits from FHLs are considered ‘relevant earnings’ for personal pension contribution purposes.

Major Changes Announced

On Budget Day, the Chancellor announced the abolition of the FHL regime effective from 6 April 2025. Additionally, anti-avoidance rules will apply to certain disposals starting from 6 March 2024, likely to prevent claims for the 10% CGT rate.

Implications for FHL Owners

This announcement is a significant setback for FHL owners. The full details of the changes are still unclear, particularly whether a new government post-general election might continue with these proposals.

FHL owners need to stay informed about these developments and, if the abolition proceeds, seek experienced tax advice. Key considerations include evaluating the viability of continuing the business and exploring restructuring options to maintain tax efficiency.

This article was published in Business Cornwall magazine, June 2024 (Page 41): Business Cornwall June 24 by Business Cornwall – Issuu