Changes announced for furnished holiday lettings
In the Spring Budget 2024, the Government announced they will be abolishing the Furnished Holiday Lettings (FHLs) tax regime from 6 April 2025.
Furnished holiday lets are furnished residential properties that are let on a series of short-term lets and certain conditions are met in relation to the days available and days let.
Currently, there are certain reliefs available to the owners of FHLs which are not available on other let residential property which has made them popular with second-home owners and as a diversification option for farmers and Estate owners.
What effect will this have on current FHL owners?
- Business Asset Disposal Relief (BADR) is currently available on the disposal of some qualifying FHL properties. This means gains that would have qualified for this relief at a capital gains tax rate of 10%, will now be subject to standard residential capital gains tax rates – 18% for gains within the basis rate band and 24% for gains taxable at the higher residential CGT rate (reduced from 28% in the Spring budget).
- Business asset rollover relief will no longer be available to reduce the gain liable to capital gains tax (potentially to nil) where the proceeds from the sale of an FHL are rolled over into another qualifying business asset.
- Gift holdover relief will no longer be available to reduce the capital gains tax liability arising on the gift of a qualifying FHL property, therefore affecting possible succession planning between family members.
- Capital allowances will no longer be available for fixtures and furnishings purchased for within the property. Instead, relief may be available for the replacement of domestic items in line with the rules for long term lets.
- Mortgage interest will no longer be available as a deduction from profits and will instead have to be claimed as a tax reducer, at 20% of the mortgage interest costs. This will therefore exclude these costs from being eligible for higher rate tax relief.
- Currently, profits from FHLs are treated as relevant earnings for pension contributions. Relief is limited to contributions of the higher of £3,600 or 100% of net relevant earnings. FHL income will therefore no longer be considered for this purpose.
FHL owners should consider the options available to them before the rules are abolished in April 2025, which may involve accelerating plans to sell or gift properties before the rule changes are implemented. However, the government has also confirmed that anti-forestalling rules will be applied from the date of the Budget to block methods that obtain CGT relief under the current rules by utilising unconditional contracts ahead of the new rules coming in in April 2025. Draft legislation on this will be published later this year so more information will be available at that time.
Changes announced for Multiple Dwellings Relief
The Government announced that from 1 June 2024, they will abolishing Multiple Dwellings Relief, a bulk purchase relief in the Stamp Duty Land Tax (SDLT) regime.
This relief has allowed purchasers to calculate SDLT liabilities based on the average value of multiple dwellings purchased at the same time, therefore reducing the overall liability (by applying a lower rate to the total amount paid).
This action has been taken as a result of the submission of large numbers of claims that are perceived by the government as not being in line with the intention of the legislation, such as claims on properties with annexes.
Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024.
The government will engage with the agricultural industry to determine if there are any particular impacts for the sector that should be considered further.
Speak to an expert
If you would like to speak to one of our tax specialists to see how the changes announced will affect you, please contact one of our experts.
