Holiday homeowners are likely be aware of the upcoming changes to the Furnished Holiday Let (FHL) tax regime. In the Spring Budget 2024 Jeremy Hunt announced the abolition of the beneficial FHL tax regime with effect from April 2025. This will mean that taxpayers who own a holiday let will lose a number of the current tax benefits.  

Until the legislation is drafted, it’s unclear exactly how FHLs will be taxed, but it is expected that they will receive similar tax treatment to long-term residential lets. 

At the moment, owners of FHLs are able to: 

• Deduct finance costs such as mortgage interest from taxable profits – this compares far more favourably to personally owned residential lets where the deductibility of finance costs is restricted to the basic rate of income tax (currently 20%) 
• Include profits from the property as earnings for pension purposes. 
• Qualify for substantial shareholding exemption (SSE) on the sale of a FHL company – SSE is where, if certain conditions are met, gains or losses accruing on the disposal by companies of shares in another company are exempt from corporation tax. 
• Qualify for Business Asset Disposal Relief on the sale by an individual of the FHL – incurring 10% Capital Gains Tax, rather than the current 24% rate for other residential sales.  
• Claim reliefs, such as Rollover Relief or relief for gifts of business assets. 
• Claim capital allowances for expenditure relating to the property, such as furniture, equipment and fixtures. 

It’s important that owners of FHLs review how owning a holiday home without the current beneficial regime will impact their financial situation going forward. Whilst we await the publication of draft legislation, we recommend reviewing the restructuring options available.  

As we prepare for the changes to come into force, it’s imperative to consider the most tax efficient options for your situation. For further guidance, please don’t hesitate to reach out to Esther Ollech at esther.ollech@mgr.co.uk or Joel Calitchi at joel.calitchi@mgr.co.uk.