Spring Budget 2024 – Furnished Holiday Lettings (FHL) and the up and coming changes

The current rules Furnished Holiday Lettings (FHLs) have sprouted like mushrooms up and down the country (not to mention the meteoric rise of Airbnb), replacing traditional buy-to-let properties. They differ from buy-to-lets in that they have their own set of... Read more

The current rules

Furnished Holiday Lettings (FHLs) have sprouted like mushrooms up and down the country (not to mention the meteoric rise of Airbnb), replacing traditional buy-to-let properties. They differ from buy-to-lets in that they have their own set of unique tax advantages attached to them.

The conditions a property must meet to be an FHL which are:

1. The property must be furnished.
2. The property must be situated in the UK or a state in the European Economic Area (EEA)
3. The property must be available for commercial letting as holiday accommodation to the public for at least 210 days in the relevant 12-month period (usually the tax year)
4. Out of these 210 days, the property must be actually let out for 105 days or more as holiday accommodation – the ‘letting’ condition.

The current tax advantages of meeting the conditions.

If an owner of an FHL property meets the conditions set out above, then, the property qualifies as an FHL, in which, there are certain tax advantages they enjoy:

1. If a loan is taken out to purchase a property, the full amount of interest paid in respect of the loan receives relief as a deduction from the rental income (unless the property allowance applies or is claimed instead)
2. Profits treated from the FHL are treated as qualifying income for pension purposes, unlike traditional buy-to-let properties. This is important if the landlord wishes to make pension contributions because an amount a taxpayer can pay into their pension is dependent on their ‘qualifying earnings’. ‘Qualifying earnings’ exclude rental profits from the letting of buy-to-let properties.
3. Finally, FHLs qualify for certain capital gains reliefs including rollover relief, gift relief and business asset disposal relief.

What’s the government changing?

The regime will be abolished in its entirety from 6 April 2025, and documents from Whitehall estimate it will raise an additional £600m for HMRC by the tax year 2028-29. The government’s argument for the scrapping of the FHL regime is because these types of properties reduce the availability of long-term rentals for residents in coastal towns and holiday destinations, which only accelerate the current housing crisis we find ourselves in with unaffordable rents and high house prices.

What does it mean for FHL owners – the tax impact? 

Firstly, the tax advantages FHLs receive as outlined above, will be abolished from 6 April 2025.

Owners of FHLs may wish to consider tax planning options in advance of 5 April 2025 to take advantage of any favourable reliefs that may be currently available to them.

If you would like to discuss the tax planning options, please contact us.

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