Last year, the UK government announced significant changes to the tax treatment of Furnished Holiday Lets (FHLs), which are set to impact landlords and property investors. The reforms, set to take effect from April 2025, aim to bring tax rules for short-term holiday rentals in line with those for traditional buy-to-let properties.
If you own or operate a Furnished Holiday Let, here’s what you need to know about the upcoming changes and how they may affect your tax position.
What’s Changing?
Currently, FHLs benefit from various tax advantages compared to standard residential lettings. However, under the new rules, these benefits will be removed, meaning:
- Loss of Capital Gains Tax (CGT) reliefs – Owners will no longer be able to claim Business Asset Disposal Relief (BADR) (formerly Entrepreneurs’ Relief) or Roll-Over Relief, making it more costly to sell or reinvest in holiday properties.
- Restrictions on Capital Allowances – The ability to deduct the cost of furnishings, equipment, and fittings through capital allowances will be withdrawn.
- Changes to Mortgage Interest Relief – FHL landlords currently enjoy full tax relief on mortgage interest payments, unlike buy-to-let landlords who can only claim relief at the basic rate of tax. This full relief will be phased out in favour of the standard buy-to-let mortgage interest rules.
- National Insurance Contributions (NICs) implications – In some cases, FHLs qualify as trading businesses for NIC purposes, but this will no longer apply under the new system.
Who Will Be Affected?
The changes will impact property owners and investors who let out holiday homes in the UK. If your property is currently classified as an FHL, you will lose the associated tax benefits from April 2025.
Many landlords have relied on these advantages to make short-term lettings a profitable business model. The removal of business tax reliefs means FHLs will be treated the same as traditional rental properties, potentially reducing the profitability of holiday lets.
What Does This Mean for Landlords?
The upcoming tax changes could significantly affect property owners in several ways:
- Higher tax bills – The inability to claim capital allowances and CGT reliefs could result in increased tax liabilities.
- Lower net rental income – The change in mortgage interest relief rules means landlords will pay more tax on rental income.
- Potential impact on property values – With reduced financial incentives, demand for holiday lets may decrease, affecting property prices in key holiday destinations.
What Should Landlords Do Now?
If you own an FHL, it’s important to review your tax position and consider your options before the changes take effect. Some steps to consider include:
- Speaking to a tax advisor at SMH Group – Professional advice can help you understand the impact on your specific circumstances and explore potential tax planning strategies.
- Assessing the viability of your holiday let – With the removal of tax benefits, landlords may need to reconsider their pricing, occupancy rates, and expenses.
- Exploring alternative structures – Some landlords may benefit from restructuring their property portfolios or shifting towards longer-term residential lets.
For more advice on navigating the complexities of the new tax rules, contact us on 0114 266 4432 or email info@smh.group.
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