HM Revenue and Customs (HMRC) have released draft legislation alongside a policy paper confirming the proposed abolition of the Furnished Holiday Lettings (FHL) tax regime. Initially announced by the previous government, it has now been confirmed that this measure will proceed under the current government.
The new regulations are scheduled to take effect from 6 April 2025 for income tax and capital gains tax purposes, and from 1 April 2025 for corporation tax.
The proposed changes aim to eliminate the tax advantages currently enjoyed by landlords of furnished holiday lets compared to other property businesses. Key changes include:
- Restriction on Loan Interest Deductions: Loan interest deductions will be limited to the basic rate of income tax.
- Removal of Capital Allowances: The ability to claim capital allowances on new expenditures will be replaced with the domestic items relief available to other property businesses.
- Capital Gains Tax Relief: Reliefs linked to the disposal of business assets will no longer apply to furnished holiday lets.
- Pension Relief: Income from furnished holiday lets will no longer be considered relevant UK earnings for the purpose of calculating maximum pension relief.
There will be specific transitional rules to manage the transition to these new regulations.
If you own properties that currently qualify under the FHL tax regime, we strongly recommend reviewing the impact of these legislative changes on your situation. This will allow you to determine whether any action is required ahead of the implementation dates. Should you need assistance in understanding how these changes may affect you, please do not hesitate to contact us. We are here to help.
For more detailed information, you can visit the HMRC website.