In April 2025, the UK will witness significant shifts in its fiscal landscape as the Furnished Holiday Let (FHL) tax regime is set to be abolished. Landlords currently enjoying benefits like full mortgage interest deductions and capital gains tax reliefs under this regime will need to re-evaluate their investment strategies.
The impending changes are poised to recalibrate the property market, with the potential to increase housing availability in tourist-heavy regions. This transition may also prompt property owners to reconsider their lettings, possibly revitalizing the long-term rental sector, while the government anticipates a £300m uptick in tax revenues
The UK Government’s Spring Budget 2024 heralded the end of the Furnished Holiday Let (FHL) tax regime. The following points outline the upcoming changes and their implications:
“Scrapping FHL tax relief affects BADR & gift hold-over relief for businesses.
Capital allowances for FHLs may face clawbacks or transitional rules with the regime’s abolition, affecting how landlords recover costs for furnishings and improvements.
The Chancellor also announced the removal of Stamp Duty Land Tax (SDLT) relief for purchasing multiple dwellings simultaneously, further tightening property-related tax benefits.
The government anticipates saving approximately £245 million annually from these changes, aiming to address the housing shortage in popular tourist destinations by encouraging landlords to convert holiday lets into long-term rentals.
The measure is particularly pertinent in Wales, given the Welsh Government’s requirements for a property to qualify as a holiday let business
The overhaul of the FHL tax relief is part of a broader strategy to level the playing field between short-term and long-term property lets, with the Treasury citing distortions in property availability due to the previous system. As a result, from April 2025, interest on loans for FHL businesses will no longer be deductible from rental income, with relief provided as a 20% tax credit against the individual’s tax liability.
These changes underscore the government’s commitment to reshaping the property market landscape and its approach to taxation in the sector.
The upcoming changes to the FHL tax regime are set to send ripples through the property market:
Market Shifts:
With the FHL tax reliefs being phased out, many property owners might opt to sell their holiday homes ahead of the 2024/25 tax year [7].
This could lead to an influx of properties on the market, particularly in areas popular with tourists, potentially stabilizing or even lowering local housing prices.
Owner Decisions:
FHL owners are facing tough choices regarding their future investment paths, especially those who counted on their FHL profits as part of their retirement planning.
Since these profits will no longer be considered relevant earnings for pension purposes, owners may need to reassess their financial strategies.
Industry Reactions:
Fiona Campbell, CEO of the ASSC, pointed out the adverse effects on the Scottish self-catering sector, urging the government not to view these businesses solely as revenue streams.
Ben Beadle of the NRLA called for a reconsideration of the tax approach to holiday lets, advocating for the reversal of tax increases to alleviate the long-term rental shortage.
In navigating these changes, property owners must seek to adopt advice on adjusting their investment approaches. To assist in this transition, Book a Free Consultation with experts who can provide tailored strategies. The implications of these shifts extend beyond immediate economic gains for the exchequer. Framing a future that demands forward-thinking solutions for the sustainability of housing in the UK’s most cherished destinations.
Q1. What is the reduced capital gains tax rate for Furnished Holiday Lets (FHLs)?
The (CGT) rates for residential properties are 18% for basic taxpayers and 28% for in higher tax bracket. However, Furnished Holiday Lets are treated as businesses, which means they may be eligible for Business Asset Disposal Relief. Formerly known as Entrepreneurs’ Relief. Qualifying properties can benefit from a reduced CGT rate of 10%.
Q2. Is it possible to live in my rental property to reduce capital gains tax in the UK?
Occupying your buy-to-let property can make you eligible for Private Residence Relief (PRR), which exempts you from capital gains tax for the time you live there. Additionally, any gains made in the final nine months before selling the property may also be exempt. However, this relief applies only to the time you reside in the property.
Q3. What tax relief has been available for holiday lets?
The tax relief available for landlords of furnished holiday lettings (FHL) provided tax advantages for costs associated with renting out furnished short-term holiday properties.
Sunsets on Furnished Holiday Let tax relief, ushering new fiscal responsibilities for property owners, impacting housing availability in tourist regions. By encouraging a move towards long-term rentals, the government’s overhaul aims to alleviate the housing shortage. An intention with potential benefits for both communities and the broader market.