‘Brightline’ Test for Furnished Holiday Lettings Ruled Out
Landlords with furnished holiday lettings (FHLs) are facing a period of uncertainty. During the Spring 2024 Budget, it was announced that the FHL tax regime would be abolished starting 6 April 2025. However, with the general election called soon after, no further details were provided, leaving landlords unsure about the future of these proposals.
Current Rules for FHLs
Under the existing regime, landlords meeting specific occupancy and availability tests are treated more like businesses and enjoy tax reliefs unavailable to landlords of long-term residential properties. To qualify as an FHL, the property must be furnished, available for letting at least 210 days a year, and actually let for at least 105 days. If the property is let for more than 155 days on rentals of 31 days or more, it doesn’t qualify as an FHL.
FHL landlords are exempt from the interest restriction rules that apply to long-term residential landlords. Instead, they can fully deduct interest and finance costs when calculating taxable profit. They also benefit from capital gains tax (CGT) business reliefs, such as business asset disposal relief, business asset rollover relief, and relief for business gifts. Profits from FHLs count as earnings for pension purposes.
The Proposed ‘Brightline’ Test
In 2022, the former Office of Tax Simplification (OTS) suggested a ‘brightline’ test to determine if a landlord is operating a property business or a trade. The ICAEW urged the Government to consider this test, which would make it easier for landlords to determine their trading status and reduce HMRC’s administrative burden. This test would also clarify the eligibility for business property relief for inheritance tax purposes.
During the Budget announcement, the Government also mentioned that anti-forestalling rules would apply from 6 March 2024, preventing the use of unconditional contracts to secure favourable CGT reliefs. The ICAEW sought clarification on any transitional rules that might apply.
HMRC’s Stance
In response to the ICAEW, HMRC dismissed the idea of a ‘brightline’ test, preferring to apply the usual rules to determine if a trade exists. They also stated that, in their view, business property relief is unlikely to be available for FHLs, as they regard the activity as investment-related, with income received in exchange for property occupation.
Navigating the Future of Your FHL
With the potential changes to the FHL tax regime, it’s crucial to stay informed and plan accordingly. For expert advice and support tailored to your situation, contact Jon and the team at Jon Davies Accountants. We’re here to help you navigate these changes and ensure you’re prepared for any updates.
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