The Furnished Holiday Lettings (FHL) regime has long offered significant tax advantages for landlords compared to standard residential lets. However, from 6 April 2025, FHLs will no longer receive these benefits and will be treated the same as other residential properties. Fortunately, transitional rules will allow landlords to access certain Capital Gains Tax (CGT) reliefs for a limited time.
Let’s break down what’s changing and how it could impact you.
Interest and Finance Costs
One of the key advantages of the FHL regime was the ability to fully deduct interest and finance costs from taxable profits, unlike landlords of standard residential properties. From 6 April 2025, this benefit will end for unincorporated landlords, and relief for interest and finance costs will be restricted to a basic rate tax reduction.
However, corporate landlords who let holiday accommodation will still be able to deduct interest and finance costs in full.
Capital Gains Tax Reliefs: Time is Running Out
A major benefit of the FHL regime is access to valuable Capital Gains Tax reliefs, such as:
- Business Asset Disposal Relief (BADR),
- Business Asset Rollover Relief, and
- Gift Holdover Relief.
Under transitional rules, if your FHL business ceases before 6 April 2025 and you meet the conditions for BADR, you can still claim the relief on disposals within the usual three-year window after cessation. BADR can reduce the CGT rate to 10%, potentially saving £1,400 for every £10,000 of gain (compared to the 24% higher rate for residential property).
Landlords with properties “pregnant with gain” may want to consider ending their FHL business before April 2025 to benefit from this relief.
Other CGT reliefs, like rollover relief, will also be unavailable after 6 April 2025. However, if the conditions for these reliefs were met before the regime ends, they will not be disrupted, even if some requirements (such as purchasing a replacement asset within three years) apply in future tax years.
Be aware, an anti-forestalling rule will prevent the use of unconditional contracts to lock in reliefs—this applies to contracts made on or after 6 March 2024.
Losses: What Happens After 6 April 2025?
From 6 April 2025, landlords with both FHLs and other residential lets will have a single property business. Profits and losses from all properties will be combined to determine the overall profit or loss.
If you have unused FHL losses on 5 April 2025, these will be carried forward and can be offset against future profits of the combined property business.
Pension Contributions: Consider Contributing Now
Profits from FHL businesses currently count as relevant earnings for pension purposes, but this will stop from 6 April 2025. Since tax-relieved pension contributions are capped at 100% of earnings (or £3,600, if higher), FHL landlords may want to consider making pension contributions during the 2024/25 tax year while their FHL profits still qualify.
Furnishings and Fixtures: Changes Ahead
Landlords with FHLs can currently claim capital allowances on furnishings and fixtures, often using the Annual Investment Allowance for 100% relief in the year the expenditure is incurred. You also have the option to claim a writing down allowance instead, and any balance on the capital allowances pool can continue to be claimed until it’s fully used up, even after 5 April 2025.
However, from 6 April 2025, no relief will be available for new domestic items. Instead, you can only claim relief on a like-for-like basis when replacing items under the replacement of domestic items rules.
Greater Flexibility in Letting
Currently, FHL rules require strict conditions on the number of days a property is available and let to qualify for tax reliefs. However, from April 2025, the removal of the FHL regime will give landlords more flexibility in how they let their properties.
For example, you could let a property as a holiday rental during summer and as a longer-term let in the winter without worrying about breaching the FHL conditions. This flexibility may also lead to increased rental income.
Need Help Navigating the End of the FHL Regime?
With the end of the FHL regime fast approaching, now is the time to assess your options and plan for the changes. If you’re unsure how these changes will impact your property business or need help accessing the transitional reliefs, get in touch with Jon and the team today. We’ll help you navigate the transition and make the most of the opportunities available before April 2025.
If you found this useful, please share it using the icons at the side of the page, or leave a comment below.
Any questions?
If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant
- You can ring us on 0151 380 8080
- You can email us at gr****@*********************co.uk