Do you own a holiday home?
In the 2024 Spring Budget, the government confirmed it would be abolishing the furnished holiday let (FHL) tax regime. The changes came into effect this year on 1 April for companies and 6 April for individuals renting out or selling FHL properties. So, what do these changes mean for you and your business?
What qualifies as an FHL?
To qualify as an FHL, a property must meet all of the following conditions:
- Be located in the UK or a European Economic Area (EEA)
- Be fully furnished, meaning there must be sufficient furniture provided for occupiers and visitors to live in the property comfortably
- Be commercially let with intention of making profit, meaning it cannot be used solely for personal use.
Availability and letting conditions
The property must also meet the following conditions:
- Availability conditions: the property must be available to let as short-term holiday accommodation for at least 210 days in the tax year
- Letting conditions: it must be let as short-term accommodation to the public for at least 105 days. The property also cannot be let to the same person for more than 31 continuous days as the letting will not count towards the 105-day total
- If the total of lettings over 31 continuous days adds up to more than 155 days in the year, the property does not qualify.
What’s changed?
The abolition of the FHL tax regime means that properties are now treated like regular rental properties. This means FHL property owners have lost their current tax benefits and will be taxed in line with other property income and gains. FHLs will also no longer be subject to separate reporting or preferential treatment.
Before the changes to the tax regime, FHL income was considered as trading income, however, proving that letting is a trade will be must harder. What does this mean for an FHL property?
Finance cost relief
Owners of FHLs can no longer get full tax relief on mortgage interest and will only be able to claim it at the basic income tax rate.
Capital allowances
There are no more capital allowances for new FHL expenditure. This will be replaced with replacement of domestic items relief.
CGT reliefs
Most FHL businesses are no longer treated as trading businesses for tax purposes, resulting in a loss of access to CGT reliefs like business asset disposal relief, roll-over relief and gift relief.
Pension relief eligibility
Income will no longer count as relevant UK earnings for pension contribution purposes.
To qualify as an FHL, a property must meet all of the following conditions:
- Be located in the UK or a European Economic Area (EEA)
- Be fully furnished, meaning there must be sufficient furniture provided for occupiers and visitors to live in the property comfortably
- Be commercially let with intention of making profit, meaning it cannot be used solely for personal use.
The property must also meet the following conditions:
- Availability conditions: the property must be available to let as short-term holiday accommodation for at least 210 days in the tax year
- Letting conditions: it must be let as short-term accommodation to the public for at least 105 days. The property also cannot be let to the same person for more than 31 continuous days as the letting will not count towards the 105-day total
- If the total of lettings over 31 continuous days adds up to more than 155 days in the year, the property does not qualify.
The abolition of the FHL tax regime means that properties are now treated like regular rental properties. This means FHL property owners have lost their current tax benefits and will be taxed in line with other property income and gains. FHLs will also no longer be subject to separate reporting or preferential treatment.
Before the changes to the tax regime, FHL income was considered as trading income, however, proving that letting is a trade will be must harder. What does this mean for an FHL property?
Finance cost relief
Owners of FHLs can no longer get full tax relief on mortgage interest and will only be able to claim it at the basic income tax rate.
Capital allowances
There are no more capital allowances for new FHL expenditure. This will be replaced with replacement of domestic items relief.
CGT reliefs
Most FHL businesses are no longer treated as trading businesses for tax purposes, resulting in a loss of access to CGT reliefs like business asset disposal relief, roll-over relief and gift relief.
Pension relief eligibility
Income will no longer count as relevant UK earnings for pension contribution purposes.
How we can help
If you let a furnished holiday property, now is the time to review your position and take necessary action. Need further help or guidance? Get in touch with us today and we can help you make the best decisions for your business.
Give us a call on 01942 816512 or email: Chris Barlow, Tax Manager: [email protected]
