Changes announced in the Spring Budget remove specific tax benefits on Furnished Holiday Lets (FHLs).

The loss of tax benefits means that those who own a FHL may want to consider taking action before 5 April 2025, when the new legislation comes into effect.

What qualifies as a furnished holiday let

To qualify as a furnished holiday let, your property must meet the following criteria:

1. Your property must be furnished – The rules are not explicit to what extent your property must be furnished, but it is advisable to have everything you’d expect from self-catering accommodation.
2. Intended to make a profit – The property must be let commercially with the intent of making a profit. You do not have to make a profit, it is the intention that is key.
3. Be available to let:
   1. Be available to let for 210 days.
   2. Be let commercially as a holiday property for 105 days.
   3. If occupied by the same person or group for more than 31 days, the total duration of these longer lettings must not exceed 155 days throughout the year.

Current tax advantages of running a furnished holiday let

1. Mortgage interest relief

Mortgage interest can be deducted from the profits of FHLs.

2. Capital allowances

You can claim specific capital allowances on holiday lets, unlike typical buy-to-lets. These include costs for refurbishing, upgrading, and furnishing the property to a luxury standard, potentially increasing your profit.

These allowances can be offset against income, reducing your tax and increasing your retained profit.

3. Pension contributions

Income gained from a furnished holiday let is classed as Net Relevant Earnings (NRE), allowing you to make tax-advantaged pension contributions.

What are the key changes to tax on furnished holiday lets?

The Furnished Holiday Letting regime classifies qualifying residential short-term lettings as a trade for specific tax purposes. When this regime is abolished, owners will lose the following tax benefits:

1. Mortgage interest

Starting April 2025, relief will be provided as a 20 per cent tax credit for higher and additional rate taxpayers, reducing the previous tax relief rates from 40 per cent and 45 per cent, respectively.

2. Capital Gains Tax

Capital Gains Tax on disposal of FHLs may currently qualify for Business Asset Disposal Relief (BADR), where the first one million of lifetime gains are taxed at 10 per cent. Alternatively, the gain can be ‘rolled over’ on purchases of certain new business assets.

From April 2025, the normal residential property CGT tax rate – currently 24 per cent – will apply, and the ‘rollover’ of gains will no longer be possible. This is a hard deadline, there are no transitional rules, no matter how long an FHL has been operating as a business.

3. Pension contributions

Tax relief on pension contributions is capped at the greater of £3,600 or 100 per cent of net ‘relevant earnings’. Starting in April 2025, Furnished Holiday Lettings (FHL) profits will no longer be considered relevant earnings for claiming tax relief on pension contributions or for Class 2 and voluntary Class 3 National Insurance Contributions (NIC).

What should I do if I own a furnished holiday let?

Firstly, it is important to consider whether your property satisfies the criteria for being a FHL.

If the current arrangements work well for you, there might be no need to make any changes. However, it’s still wise to review how much additional tax you might need to pay in future tax years.

If you’re uncertain about keeping the property, it’s important to understand the financial implications of the recent tax rule changes for FHLs and to explore your options.

Consider selling the property before 6 April, 2025, to potentially benefit from Business Asset Disposal Relief (10 per cent tax rate). Even if it doesn’t qualify, the top tax rate is now 24 per cent.

However, the annual gains exemption has decreased, so seek tax advice before proceeding.

Capital gains must be reported and taxed within 60 days of completion.

Get in touch with one of our team for tailored advice on what to do with your FHL.

Incorporation Relief offers landlords the opportunity to reduce their Capital Gains Tax (CGT) liabilities.

It does this by allowing you to defer paying Capital Gains Tax (CGT) on a property when transferring it to a limited company in exchange for shares. The deferred CGT only becomes payable when you eventually sell the shares.

This relief is automatically applied, and the new shares will have a reduced base cost. Be aware that selling these shares in the future may result in a higher CGT liability.

How can I qualify for corporation relief as a landlord

To qualify for Incorporation Relief, landlords need to show HMRC that they run their property portfolio as a business rather than a passive investment.

Although the difference between a property business and a passive investment isn’t clearly defined, key factors include the size of the portfolio and how actively it is managed.

If it qualifies as a business, transferring the portfolio to a limited company can defer CGT on the properties. However, SDLT still needs to be paid unless the transfer involves a partnership.

Benefits of incorporation

Incorporating can offer several benefits, including more tax-efficient remuneration planning, lower tax charges when selling properties, and no restrictions on tax relief for mortgage interest.

It allows for efficient pension planning and increases access to capital through share issuance, facilitating business expansion and investment opportunities.

Additionally, it provides enhanced liability protection by separating personal assets from business liabilities, thereby mitigating personal financial risk.

Incorporation also offers greater flexibility in structuring the ownership and transfer of shares, aiding in succession planning and ensuring a smoother business transition in the long term.

If you are considering transferring your property portfolio into a limited company for the tax benefits, it is important to do so properly. A smooth transition requires knowledge of the intricacies of the tax required.

Get in touch with one of our advisors if you are considering transferring your property, or if you have done so unsuccessfully in the past.

If you are a landlord, or are investing in property to let, here is an overview of what 2025 could look like.

Will the rental market be slightly calmer in 2025?

Earlier this year, there was an average of 19 enquiries per rental property. This number has since dropped to 11 enquiries per home listed for rent.

However, this figure is still nearly twice the six enquiries per property observed in the pre-pandemic market of 2019.

Compared to the same time in 2023, we’ve seen a 19 per cent decline in the number of people seeking to move, along with a seven per cent increase in the availability of rental properties.

As a result, the rental market in 2025 may be calmer than what we’ve experienced in recent years.

Will rent prices rise in 2025?

After several years of steep increases in average rents, this year experienced the smallest rise since 2021.

The average rent outside London has reached £1,339 per month, a 4.5 per cent increase compared to last year, while rents in London have risen by two per cent.

Looking forward, it is expected that advertised rents to grow by three per cent both inside and outside London in 2025.

The larger rent increase anticipated in London next year is driven by the resurgence of city centre living after the pandemic’s “race-for-space” period, as some companies bring employees back to office-based work.

What will have the biggest impact on renters?

It’s no secret that rents have been rising faster than wages in recent years.

Over the past five years, average rents have gone up by 40 per cent, while wages have only increased by 28 per cent.

As renters reach an ‘affordability ceiling’—the point where they can’t afford higher monthly rents—and landlords strive to keep their properties occupied, 26 per cent of rental homes have had their asking rents reduced, up from 23 per cent during the same time last year.

Landlords aiming to advertise rental properties in the upcoming months will need to balance between increasing rents to cover rising costs and ensuring affordability for tenants.

Get in touch for guidance on how changes in the rental market may affect your property income.

Outside of the changes to Stamp Duty Land Tax (SDLT), here are some of the changes that landlords need to be aware of in 2025:

A new Renters’ Rights Bill

The main changes in Renters’ Rights Billis banning Section 21 ‘no-fault’ evictions, This rule currently allows landlords to evict tenants with two months’ notice without reason, which has been criticised for its lack of security for renters.

The Bill also proposes longer notice periods for finding new homes, protection against rent increase ‘backdoor evictions,’ anti-discrimination measures, and improved housing standards.

Leasehold and Freehold Reform Act provisions come into effect

January 2025 also sees the abolition of the ‘two-year rule’. The rule requires leaseholders to wait two years after they purchase a property before they can extend their lease or buy their freehold.

Spring will bring the right to manage provisions. More leaseholders in mixed-use buildings will be able to take over management from their freeholders, and leaseholders making claims will, in most cases, no longer have to pay their freeholder’s costs.

Consultation of enfranchisement premiums in summer 2025. Matthew Pennycook has referred to “serious flaws” in the way in which the Leasehold and Freehold reform Act 2024 calculates the amount of money leaseholders will need to pay to buy or extend their leases that “would prevent certain provisions from operating as intended and that need to be rectified via primary legislation”.

Publication of draft Leasehold and Commonhold reform Bill

We will see progress in 2025 on the banning of new leasehold flats, in favour of making ‘commonhold’ the default tenure by 2030, the abolition of forfeiture and the tackling of ground rent. These rules will affect landlords who buy or own flats.

Commonhold is an alternative way of owning a flat which avoids the shortcomings of leasehold ownership.

There is no lease, and a commonhold association which all the unit holders belong to decides how to manage the property.

For larger blocks, the unit holder wouldn’t carry out the day-to-day management themselves but would instead appoint agents to manage it for them.

However, it would be the unit holders (rather than an external freeholder) who would control the appointment and management of those agents.

This is intended to be in place by the second half of 2025.

Potential regulation of property agents

Matthew Pennycook has announced in a written statement that they are “looking again at Lord Best’s 2019 report on regulating the property agent sector”.

They would consult on the regulation of property agents, which would include “as a minimum”, mandatory professional qualifications to “drive up the standard of their service”.

Get in touch with our team if you are concerned about the financial impact of any of the new regulations coming into force.

The biggest changes impacting property owners, and prospective property owners, are the changes to the Stamp Duty Land Tax (SDLT).

What are the changes?

Stamp Duty Land Tax (SDLT) is a tax on property purchases, payable when the transaction is complete. The amount is dependent on the property value, whether you are a first-time buyer or not, or whether it is an additional property (not your main home).

The following table outlines the SDLT bands from 1 April 2025:

How will the changes affect those who are buying or already own a second property?

Individuals buying an additional residential property in England and Northern Ireland now face a higher Stamp Duty rate.

Previously, this rate was three per cent above that of main residence purchases, but since October 31, 2024, it has increased to five per cent.

An increase in SDLT could deter prospective landlords from entering the market, as well as discourage current landlords from growing their portfolios.

This could lead to a decrease in the number of available rental properties and cause rents to rise.

This change also suggests that selling properties after March 2025 could become significantly more expensive. Buyers may factor in the higher tax costs, potentially leading to lower sale prices.

Landlords thinking about selling their properties should take action before April 2025 to avoid higher SDLT rates and possible declines in sale prices.

Given the time needed for completion, many landlords are turning to Landlord Sales Agency to begin the process now.

If you feel the latest changes will affect your property portfolio, it is important to consult the advice of an expert to ensure you protect your assets.

Get in touch with our team for guidance on how this change in SDLT may affect the expansion or sale of your property portfolio.