The Furnished Holiday Lettings (FHLs) regime was abolished on 6 April 2025, but what does the abolition mean for your holiday letting property?
It means that the property is now considered part of either your main UK or overseas property business. It also means that some of the beneficial tax rules that previously applied no longer do so.
New rules
Moving forward:
- Tax relief for dwelling-related loan interest will be restricted to basic rate (20%).
- New capital expenditure will generally not qualify for capital allowances, Instead, the replacement of domestic items relief may apply.
- Capital Gains Tax reliefs for trading business assets (such as Business Asset Disposal Relief (BADR), Gift Relief and Rollover Relief) will no longer be available.
- Income from the property will no longer be included in ‘relevant UK earnings’ for the purposes of calculating maximum pension relief.
Transitional measures
It is worth noting that there are some transitional measures that you may benefit from if you take action swiftly:
- Pre-April 2025 FHL losses can still be carried forward and offset against future profits from the relevant property business (UK or overseas).
- If you had a capital allowances pool at 5 April 2025, it can be carried forward within the general property business. You will still be able to claim writing-down allowances against it in future.
- For CGT purposes, if your FHL business ceased before 6 April 2025, and you sell the property within three years, you may still qualify for BADR.
What next?
If your property previously qualified as an FHL, here are some practical considerations to bear in mind:
- Review your property portfolio. Check which properties were qualifying FHLs and assess how the new rules affect your tax position.
- Plan capital spending carefully. With capital allowances withdrawn, consider timing large purchases or improvements accordingly.
- Check pension contributions. If you were using FHL income to justify pension payments, speak to an adviser to avoid excess charges.
- Track pre-2025 losses and capital allowance pools. Make sure these are recorded and available for future use.
- Consider future sales. If you plan to sell, doing so within the 3-year BADR window may save you significant CGT. As above, this only applies where the FHL business ceased before 6 April 2025.
How can we help?
If you need guidance in navigating the new FHL regime, please contact your relationship principal, email tax@haroldsharp.co.uk or call 0161 905 1616 if you’d like to discuss.