Furnished Holidays Lettings Relief (FHLR): The Party's Over - Ad Valorem

An Introduction to Furnished Holiday Lettings:

Furnished Holiday Lettings, also known as FHLs, are properties you can rent as a holiday home. To be considered as an FHL, the property must be situated in the UK or the European Economic Area (EEA), furnished and rented out commercially.

Current tax reliefs available to FHLs and changes being made:

Income Tax:

Tax relief on mortgage interest:

• Until April 2025, landlords can claim full tax relief on mortgage interest for FHLs.
• From April 2025, this benefit will end for FHLs, and they will be treated the same as regular rental properties for mortgage interest relief purposes.

Tax relief on furniture and equipment:

• Currently, landlords can claim tax relief on the cost of furniture and equipment (like cookers and beds) for FHLs.
• From April 2025, this tax relief will stop for new purchases.
• Landlords may be able to claim a different type of relief for replacing items, but the details of this are still to be confirmed.

Tax treatment of FHL profits:

• FHL profits currently count as earned income, which can be beneficial for pension contributions.
• This benefit will end from April 2025.

Profit sharing for jointly owned FHLs:

• Currently, owners of a jointly owned FHL can split profits however they like, regardless of ownership shares.
• From April 2025, profits must be split based on ownership shares, similar to regular rental properties.
• The default split is 50/50, but this can be amended to the individual’s beneficial entitlement to the property by making an election to HMRC.

Capital Gains Tax (CGT):

With tax treatment akin to a trade, properties used for Furnished Holiday Lets (FHLs) currently qualify for certain Capital Gains Tax (CGT) reliefs traditionally available only to trading businesses:

• A 10% CGT rate via Business Asset Disposal Relief.
• Roll-over relief when selling one property and replacing it with another.
• Hold-over relief when gifting the property, such as transferring it to children.

In contrast, the CGT rate for other residential properties is 24% (or 18% within the basic rate tax band) and does not include eligibility for Hold-over or Roll-over reliefs.

Although these changes will come into effect from April 6, 2025, anti-forestalling rules for CGT will be applied starting from March 6, 2024.

How can the team at Ad Valorem Group assist you:

The impending removal of Furnished Holiday Lettings relief is undoubtedly a cause of frustration for many property investors. However, it is important to recognise that while this tax advantage is being phased out, there remain various other avenues for claiming reliefs on rental properties.

To navigate the complexities of these changes and maximise potential tax benefits for your existing Holiday Lettings or planned investment, we strongly recommend seeking expert advice. Ad Valorem Group’s tax team possesses in-depth knowledge of the property market and tax landscape, enabling them to provide tailored guidance and support.

Please contact our tax team for a comprehensive assessment of your specific circumstances.