The Budget 2024 has announced that the Furnished Holiday Letting (‘FHL’) regime will be abolished from April 2025.
In addition to the additional tax revenue raised, the Chancellor intends to encourage FHL landlords to sell their properties or revert to more traditional long-term lettings, which will boost the housing market and increase the overall supply of properties in tourist destinations.
The existing FHL regime
The tax regime applicable to qualifying FHLs is advantageous compared to that which applies to more usual buy-to-let investment properties, including:
- Full tax relief for mortgage interest.
- Access to certain Capital Gains Tax reliefs, including Business Asset Disposal Relief (BADR) on the sale of the property.
- Entitlement to claim capital allowances on the furniture and white goods within the property.
In order to qualify as an FHL, the property must generally be made available as furnished holiday rental accommodation for at least 210 days per annum and be let for at least 105 days.
Impact of the abolition of the FHL regime
The withdrawal of full relief for borrowing costs, along with the expiry of the 10% Capital Gains Tax rate, is likely to drive many individual landlords out of the sector over the next year.
Others may explore an incorporation of their portfolio, albeit this can be a complex and often costly process. In many instances, the tax costs arising on an incorporation, and the need for existing mortgages to be transferred or refinanced, may mean that transferring an existing FHL business into a company simply won’t be viable.
The removal of the regime will also bring gains on the sale of FHL properties into the new rate of residential CGT of 24%. The loss of a 10% rate of CGT on disposal and the impact of the new rate is likely to cost FHL landlords leaving the sector dearly.
Following today’s announcements, it appears likely that FHL owners will need to consider the impact of today’s announcements on their positions.
To find out more or discuss your individual tax needs, please contact a member of the Tax team on 0333 123 7171.
