By Debbie Franklin, Director of Tax and property tax specialist
The Chancellor intends to go ahead with plans to abolish the furnished holiday lettings (FHL) tax regime starting April 2025, as outlined in new draft legislation. This change will remove the tax advantages currently enjoyed by short-term holiday let landlords over those offering standard residential properties.
The government expects to raise £35 million in additional tax revenue in 2025-26, rising to £140 million in 2026-27, and £245 million by 2028-29. From April 2025, income and gains from FHLs will be treated like other property income and gains.
The reform will affect:
- Finance cost restrictions, limiting loan interest to the basic rate for income tax.
- Removal of capital allowances for new expenditures, allowing relief for replacement domestic items.
- Withdrawal of access to chargeable gains reliefs for trading business assets.
- Exclusion of FHL income from relevant UK earnings for pension relief calculations.
Transitional rules for existing FHL part way through expenditure on an ongoing project will be introduced, affecting capital allowances treatment with a short-term allowance.
Losses can still be carried forward against future property business profits. However, current reliefs like roll-over relief and business asset disposal relief will be abolished. Again, there will be some transitional rules.
An anti-forestalling rule from 6 March 2024 will prevent tax avoidance.
The draft legislation is here Draft legislation, Finance (Future Measures) Bill, Schedule 1.
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