Back in March, the then-Chancellor of the Exchequer, Jeremy Hunt, announced that the Furnished Holiday Lettings (FHL) tax regime would be abolished with effect from 6 April 2025. Very little additional detail was published after that announcement, most probably lost in part due to the announcement of the General Election.
With the election now behind us, at the end of July, HMRC published their policy paper on what the announcement means in detail.
The removal of the tax regime from 6 April 2025 means that there will be four main changes, namely:
- Interest on mortgages to buy the property or otherwise finance the business will no longer be deductible as an expense, but tax relief will instead by restricted to a maximum of 20% of the interest.
- The trading status of the property will be removed meaning that, for capital gains tax (CGT) purposes, a sale of the property will no longer qualify for the 10% rate of CGT. It will also no longer be possible to use CGT holdover relief for gifts of the property (or part of it).
- Profits from an FHL business will no longer be treated as relevant earnings for the purposes of making pension contributions.
- New expenditure on “plant and machinery” will not qualify for the more beneficial capital allowances regime but will instead qualify for the less generous replacement of domestic items relief.
Depending upon your circumstances, there are some steps which can be taken now to reduce the impact of these changes, however, relatively swift action is needed to consider this, before the change in rules take effect.
If you would like advice on how these changes will affect you, please speak to your usual Milsted Langdon contact, or get in touch with our specialist personal tax team.