What does the abolishment of Furnished Holiday Lets mean for me?

As announced in the Spring Budget and now confirmed in draft legislation, the Furnished Holiday Letting (FHL) Scheme will be abolished on 6th April 2025. Simply, this means your property will no longer be awarded favourable tax treatment over other residential lettings. 

The FHL Scheme was introduced in the 1980s after consideration as to whether short term holiday letting businesses should be treated as a trade rather than the same as other property rentals. Instead of treating the holiday lets as a trade, the new Furnished Holidays Lets scheme was created to give favourable tax treatment. 

The current FHL scheme includes: 

• Interest and finance costs can be deducted from income with no restriction 
• Capital allowances can be claimed on plant and machinery 
• On sale of the property, business asset reliefs are available 
• Profits from FHLs are treated as relevant earnings 

The abolishment of thr FHL scheme will therefore mean: 

• Interest and finance costs will be restricted to 20% basic rate relief 
• No capital allowances on the purchase of new capital items will be available. Instead replacement of domestic items relief will be available. Transitional rules will be introduced for existing Furnished Holiday Lets who are in the middle of ongoing projects with a short-term allowance.
• On sale the business asset reliefs will not be available meaning a higher rate of tax on sales, except for transitional arrangements.
• Profits will no longer be included as relevant earnings when calculating maximum pension relief and will therefore result in lower tax relief for pension contributions for property owners
• FHLs with losses to carry forward will be available for set these losses off against future years’ profits of a UK or overseas property business.

Anti-forestalling rules will be introduced from 6th March 2024 to prevent gaining a tax advantage of capital gains tax relief through the use of unconditional contracts.

How can we help? 

If you have a Furnished Holiday Let and need an experienced accountant, at TaxAssist Accounts we can support and guide you through the transition. Please contact us on 0800 0523 555 or use our simple online contact form to arrange a free initial consultation.  

Date published 11 Mar 2024 | Last updated 7 Aug 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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