Furnished Holiday Let Tax

Furnished Holiday Lets (FHLs) are a specific type of rental property in the UK, offering unique tax advantages to property owners.

To qualify, the property must meet certain criteria, including location, furnishings, availability for letting, and minimum bookings per year. The key distinction from traditional buy-to-let properties is the short-term nature of FHL rentals.

The benefits of achieving FHL status are significant. These include capital allowances, potential capital gains tax relief, and the ability to deduct various expenses from rental income, such as mortgage interest, agency fees, and property maintenance costs.

Compared to standard buy-to-let investments, FHLs are considered a business for tax purposes, which allows for more comprehensive expense deductions.

Abolition of FHL status

The UK government has announced plans to abolish the beneficial tax treatment for Furnished Holiday Lettings (FHLs) from April 2025. This means that FHL owners will no longer be able to claim a number of tax reliefs, including:

  • Mortgage interest relief: Currently, FHL owners can claim 100% of the mortgage interest as an expense. From April 2025, this will be reduced to 20%, bringing FHLs into line with the rules for buy-to-let properties.
  • Business asset disposal relief (BADR): This relief allows FHL owners to pay a lower rate of capital gains tax when they sell their property. From April 2025, BADR will no longer be available for FHLs.
  • Gift holdover relief: This relief allows FHL owners to pass on their property to their children or grandchildren without incurring a capital gains tax charge. From April 2025, gift holdover relief will no longer be available for FHLs.

These changes will have a significant impact on the profitability of FHLs. Higher rate taxpayers, in particular, will be hit hard by the loss of mortgage interest relief.

It is important to note that the changes have not yet been implemented, and there is still time for the government to change its mind. However, FHL owners should be aware of the potential changes and start to plan for the future.

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