Written by Steve Martin
Senior Client Services Manager
Ward Goodman
November 11, 2024
In our previous article, we detailed significant updates coming to the Furnished Holiday Lettings (FHL) tax regime, effective from April 2025. With these changes fast approaching, it’s crucial for holiday let owners to review their financial plans and understand the new tax rules.
Below is a summary of the upcoming changes and how to prepare before the April 2025 deadline.
What’s Changing?
The current FHL tax regime offers owners of qualifying holiday lets several benefits, treating them as if they are running a trade. This structure allows for tax reliefs, including full mortgage interest deductions, capital allowances, and Business Asset Disposal Relief (BADR).
However, from April 2025, income and gains from holiday lets will be taxed under general property business rules. This means the end of FHL-specific reliefs, replaced by standard property business deductions.
Which Key Tax Benefits Will Be Lost?
- Mortgage Interest Relief
Presently, mortgage interest on FHL properties is fully deductible from rental income. From April 2025, however, this relief will be capped at the basic 20% rate, increasing tax liabilities for higher-rate taxpayers. - Capital Gains Tax (CGT) Reliefs
FHL properties currently benefit from Business Asset Disposal Relief, reducing CGT to 10% on the first £1 million of lifetime gains. This will end in April, with gains taxed at the standard residential property CGT rate of 24%. - Capital Allowances
Owners can currently claim capital allowances on qualifying expenses like furnishings and equipment. From April 2025, these will be replaced by a basic deduction for replacing domestic items only. - Pension Contribution Relief
Profits from FHLs currently qualify as ‘relevant earnings’ for pension tax relief. From April 2025, FHL income will no longer count toward pension relief, reducing allowable contributions. - Loss Relief
Losses from FHLs can no longer be carried forward to offset future FHL profits specifically but will instead offset general property business profits.
How Can I Prepare For The Changes?
- Review Your Financial Position
Assess the impact of losing these reliefs on your finances. An experienced tax advisor can help you calculate and plan for any increased liabilities. - Maximise Capital Allowances
Before April 2025, ensure all eligible capital allowances are claimed. Consulting a specialist may help you maximise reliefs on existing expenditures. - Reassess Pension Contributions
If you rely on FHL profits for pension tax relief, consider maximising contributions before the FHL regime ends. - Seek Expert Advice
Consulting a tax specialist like Ward Goodman ensures you’re prepared for the financial impact and able to make informed decisions before the changes take effect.
Learn more about the FHL tax changes and what will be affected.
Final Thoughts
April 2025 marks a major shift in how furnished holiday lets are taxed. Ward Goodman’s tax and financial planning team can help you understand and manage these changes. From evaluating tax implications to optimising remaining reliefs, our experts are ready to assist.
For expert guidance on your holiday let business, contact Ward Goodman today.
