What does the abolition of the furnished holiday letting tax regime mean? Sorry FHL landlords, but the taxman is out for your wallet! Up to now, landlords who use the furnished holiday lets (FHL) tax regime can deduct the full cost of their mortgage interest payments from their rental income, are entitled to capital allowances on the furniture and other plant and equipment, pay lower capital gains tax (CGT) when they sell and are entitled to CGT rollover relief and income tax loss relief. All of which is a significant difference by comparison with the taxation of landlords whose property does not qualify as a FHL.
But the budget change is to abolish the furnished holiday lets (FHL) tax regime! Now this change may be dressed up as putting all landlords on an equal footing, but it is also linked to the Government’s aim of making more housing available as they hope it will result in more long-term rental properties or of sales of FHL property back into the market.
Selling a FHL property gave you a benefit. It qualified for the 10% rate of Capital Gains Tax as a disposal of business assets. The 10% rate only applied to the first £1m of value, but by comparison with the main rate of CGT on houses of 28% it could save a substantial £180,000!
Not being able to claim capital allowances is potentially also a big difference – firstly not claiming them going forward and secondly, do we potentially have to consider notional disposal proceeds in your 2025 tax return?
For individuals taxed at the higher rates, not being able to claim full mortgage interest rate relief will mean they pay more tax from April 2025.
What Next?
This change comes into effect from April 2025 and there will be more detail available once the draft legislation is published. Which is good as we need to look at the detail!
If you are thinking of selling your FHL property you need to be careful and get proper advice. The budget announcement included forestalling provisions from 6 March 2024 to prevent anyone from obtaining a tax advantage!
Can you incorporate your FHL properties into a limited company and is this the best thing to do? Again, take proper advice first.
If you would like bespoke help on your situation and a review of your options and their tax implications then please get in touch [email protected]
