Is it time to panic? The answer is…not yet!

Furnished Holiday Let regime to be abolished from April 2025

As announced at the Spring Budget 2024, the Government will abolish the Furnished Holiday Lettings (FHL) tax regime from 6 April 2025. The result will be that short-term and long-term lets will be treated the same for tax purposes. Individuals with FHL and non FHL residential properties (often referred to as buy to let) will no longer need to calculate and report income separately. This could be one positive.

This news comes on the back of other recent proposals challenging the choice of such lettings.  In this case, the Government will remove the current incentive for landlords to offer short-term holiday lets rather than longer-term homes. This is aimed, according to the papers released following the Budget, at “levelling the playing field between short-term and long-term lets and supporting people to live in their local area”. 

It's suggested that the legislation didn’t benefit all FHLs and regular reference was made to Airbnb operators.  In our view, there’s a risk that hot spot areas such as those in our region -  Norfolk, Suffolk and Essex - could be worst hit, as, in most cases in the East of England, the current FHL criteria (actual let for 105 days/available for 210 days of the year) is met, due to the volume of tourists that these counties and the properties in them are able to attract.

The benefits currently available as part of the FHL regime are:

• Capital allowances can be claimed for plant and machinery and integral fixtures and fittings
• Interest on borrowings can be claimed in full against profits
• Beneficial Capital Gains Tax (CGT) reliefs, including Business Asset Disposal Relief
• Profits can be treated as relevant earnings for pension purposes
• Income doesn’t have to be split for income tax purposes on a default 50:50 or even on ownership apportionment basis
• Small business rates relief can, potentially, be claimed.

There are currently so many questions and, in reality, no answers.  We’re keen to learn how these and other rules such as anti-forestalling and VAT registration will be affected and implemented and if there’ll be a transition period or a hard stop at 5 April 2025, which could have an impact prior to capital allowances claims and losses being carried forward.

Who’ll be affected negatively, the most? 

1. Those with high borrowings – a limitation to basic rate tax relief on the interest incurred will lower net returns
2. New entrants to the market who’ll lose relief on the initial furnishing or those looking to expand a property or expand a portfolio
3. Married couples, or those in civil partnerships, who’ve benefited from being able to allocate profits flexibly
4. Those who are unmarried and can’t easily reallocate a capital share of the property to their partner without triggering a potential CGT transfer
5. Those looking to sell after April 2025 (beware the anti-forestalling issues by trying to be creative in pushing forward a sale before this date)

Who’s likely to benefit the most?

1. Established businesses, who are likely only to be replacing assets in the property rather than buying additional items
2. Those FHL owners who are registered for VAT, and currently pay over 1/6^th of their income, in effect, to HMRC. While the recovery of VAT on expenditure will be reduced, those in regular net pay situations – so either larger FHL businesses with multiple units or those with high end properties – are likely to be better off.

The draft legislation is yet to be published but we’ll provide further updates when these become available.

Need Help?

If you’d like to discuss this in more detail, please get in touch with your usual Larking Gowen contact. You can find contact details in the Our People section of our website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Chris Scargill and Melanie Howard

A more detailed appraisal of the Budget announcement relevant to FHLs is covered in our bespoke brochure on this matter.