Furnished Holiday Lettings (FHL) Tax Regime Abolished: Changes for 2025
Published 10th September 2024
At Hammond-Barr Accountants, we always keep our clients in Stevenage and beyond informed about significant tax changes that could profoundly affect their investments. The Chancellor recently announced a major shift in the tax landscape for furnished holiday lettings (FHLs) owners. Let's break down what this means for you and your property investments.
The Big Change: FHL Tax Benefits Ending
From 6 April 2025, the favourable tax treatment furnished holiday lettings enjoy will be abolished. This significant change will affect many property owners who have invested in holiday rentals. It's crucial to start planning for these changes now.
What's Changing?
Currently, FHLs benefit from several tax advantages. Here's what's on the chopping block:
Finance Costs Deduction**: The ability to deduct the total finance costs (like mortgage interest) from FHL income.
Capital Gains Tax Relief**: The potential to claim business asset disposal relief can result in a reduced 10% capital gains tax rate on disposal.
Pension Contributions**: FHL profits count as relevant earnings for pension purposes, allowing for tax-advantaged pension contributions.
Capital Allowances**: The option to claim capital allowances on items such as furniture and fixtures against rental income (for those using the accruals basis).
Cash Basis Deductions**: The ability to deduct expenditure on furniture as an expense of the property business (for those using the cash basis).
Who Will Be Affected?
This change will have a significant impact on owners of furnished holiday homes that are let out commercially and meet the conditions for recognition as an FHL for tax purposes.
Why Is This Happening?
The government has introduced this change as part of a broader set of tax-raising policies announced in the Spring Budget. The aims are to:
Fund tax cuts in other areas, such as National Insurance
Remove tax advantages from short-term holiday lets over longer-term residential rentals
Support people living in their local areas
Simplify the tax system by removing differential treatment for different types of rental properties
What Should Property Owners Do?
If you own a furnished holiday letting, it's crucial to start planning for these changes now. Here are some steps to consider:
Review Your Portfolio: Assess how this change will impact your overall property investment strategy.
Financial Planning: Consider how the loss of these tax benefits will affect your income and plans.
Explore Alternatives: Look into other investment options that might offer similar benefits post-2025.
Seek Professional Advice: Consult with tax experts to understand the full implications of your specific situation.
How We Can Help
At Hammond-Barr Accountants, we understand that this change may concern many FHL owners. We're here to help you navigate these new waters:
We can provide a detailed analysis of how these changes affect your property investments.
Our team can assist in developing strategies to mitigate the impact of these tax changes.
We'll help you explore alternative investment options that align with your financial goals.
Be sure to start planning now. Book a consultation with us today to ensure you're well-prepared for these significant changes to the FHL tax regime.
Stay ahead of the curve, and let us help you adapt your property investment strategy for the post-2025 tax landscape.
Want to know more?
You can contact Hammond-Barr Accountants on 01438 281281 or via email at [email protected].
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