If you have a holiday home, now might be the time to look into the upcoming changes to your tax benefits.
Tax implications for Furnished Holiday Lets (FHLs) are set to change from April 2025, as the FHL allowance will be abolished.
This will result in a loss of favourable tax treatment that is currently enjoyed by FHL owners.
Currently, owners of FHLs benefit from various tax advantages:
- Capital allowances: FHL owners can currently claim up to £1 million of capital expenditure through the Annual Investment Allowance (AIA).
- Financial costs: Expenses like mortgage interest are currently fully deductible from rental income, reducing taxable profits significantly, unlike non-FHL rentals.
- Relevant earnings: FHL income is considered earned income, making it eligible for relief at the owner’s highest rate of Income Tax.
- Capital Gains Tax: FHL owners may qualify for Business Asset Disposal Relief, taxed at a lower rate, instead of Capital Gains Tax (CGT) if their activities are deemed to constitute a business.
Following the abolition of these rules, it is expected that tax regulations governing FHLs will align more closely with those applicable to residential property rentals.
This may include similar business allowances for owners letting out multiple properties and operating as a business entity.
What classifies as a FHL?
FHLs must meet certain criteria including:
- Located in the UK or European Economic Area (EEA).
- It must be actively rented out with the intention of generating profit.
- The property is available for FHL rental for at least 210 days annually.
- It is commercially let as an FHL for at least 105 days per year.
- Long-term rentals (over 31 consecutive days) do not exceed 155 days per year.
- The property is furnished sufficiently for occupancy
If you own a holiday home and want to discuss how these rule changes may affect you, please get in touch.
