The UK’s Furnished Holiday Lettings (FHL) tax regime is on the verge of being abolished, following reforms announced under the previous Conservative Government in Spring 2024. These changes, which significantly impact second homeowners and landlords, are now set to take effect over the coming months.
Key Dates to Note:
- 1 April 2025 – Changes come into force for Corporation Tax and Corporation Tax on chargeable gains.
- 6 April 2025 – Changes take effect for Income Tax and Capital Gains Tax.
What Does This Mean for Landlords?
Currently, the FHL tax break offers a more profitable route for second homeowners, incentivising them to let out their properties to holidaymakers instead of long-term residential tenants. This has been a point of contention, as it reduces the supply of long-term rental properties available to local residents.
Some of the key tax advantages currently enjoyed under the FHL regime include:
- Loan Interest Deductions – FHL properties are exempt from the restriction that limits loan interest relief to the basic rate of Income Tax.
- Capital Allowances – Landlords can claim capital allowances on items such as furniture, fixtures, and equipment, reducing taxable profits.
- Capital Gains Tax (CGT) Reliefs – Benefits such as Business Asset Disposal Relief and rollover relief currently apply to FHL properties.
However, from April 2025, these beneficial tax treatments will no longer apply and furnished holiday lets will be taxed in line with standard residential rental properties.
The End of Multiple Dwellings Relief
Alongside the abolition of the FHL tax regime, Multiple Dwellings Relief (MDR) is also being scrapped. MDR has allowed landlords and property investors to reduce their Stamp Duty Land Tax (SDLT) bills when purchasing multiple properties in a single transaction. The removal of this relief will increase upfront costs for those investing in rental properties.
Government’s Justification
The Government has framed these changes as a step towards “fairness”, ensuring that tax rules for holiday lets are aligned with those applied to other property businesses. This move is expected to redirect properties from the short-term holiday rental market back into the long-term rental sector, potentially improving housing availability for local communities.
What Should Landlords Do Now?
If you currently own or operate a furnished holiday let, it’s essential to assess how these tax changes will affect your business and financial planning.
Some key actions to consider:
- Review your tax position – If you rely on the tax advantages of the FHL regime, you may need to reassess your business structure and profitability.
- Explore alternative rental options – With tax benefits disappearing, you may find it more viable to convert your property into a long-term rental.
- Plan for higher tax liabilities – If you were benefiting from loan interest deductions, capital allowances, or CGT reliefs, factor in the potential increase in tax liability from 2025 onwards.
- Seek professional advice – Consulting with an accountant or tax advisor can help you develop a strategy to mitigate the financial impact of these changes.
Final Thoughts
The abolition of the Furnished Holiday Lettings tax regime marks a significant shift for second homeowners, landlords and property investors. While the Government aims to create a fairer tax system and improve housing availability, these changes may lead to financial challenges for those operating in the holiday rental market.
If you need help navigating these changes, our team is here to support you. Get in touch with us today for tailored tax planning advice to ensure your property investments remain financially sound.
Contact us today on n 01775 529345 or email us at office@cbsltd.org to discuss your options and plan ahead!
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