The Furnished Holiday Lettings (FHL) scheme, in place since 1984, has provided tax benefits to landlords and supported the UK tourism sector. However, significant changes from April 2025 mean FHL landlords must prepare now. In this article, we’ll explain the current benefits, the upcoming changes, and what they mean for you.
Current FHL Rules and Tax Benefits
FHL landlords currently enjoy several tax advantages if their properties meet these criteria:
- Available for letting at least 210 days a year
- Let for at least 105 days annually as holiday accommodation
- Fully furnished
- Let to the same tenant for no more than 31 days (with some exceptions)
Tax Benefits Include:
- Capital Allowances: Claim on furniture, fixtures, and fittings.
- Income Tax: Rental income qualifies for pension contributions.
- Profit Treatment: Profits are treated as trading income, allowing access to Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and business rollover relief for Capital Gains Tax (CGT).
- Losses: Can be offset against other income.
- Inheritance Tax (IHT): Potential Business Property Relief (BPR) eligibility.
What’s Changing in April 2025?
From April 2025, the FHL regime will be abolished, leading to the following changes:
- No Capital Allowances: Higher taxable profits as the cost of furnishings can no longer be deducted.
- Shift to Property Income: Income will be treated as property income, losing access to trading-related tax reliefs such as Business Asset Disposal Relief and rollover relief.
- Restricted Losses: Losses can only be carried forward against future property rental income.
- Pension Contributions: FHL profits will no longer count as relevant earnings for pensions.
How These Changes Affect You
These changes will impact all FHL landlords, though the exact effect depends on individual financial circumstances and portfolios. Key considerations include:
- Capital Allowances: Review existing claims and accelerate purchases of furniture or equipment before April 2025 to take advantage of current rules.
- Losses: Ensure unused losses are carried forward correctly as they can only offset future rental income.
- CGT Planning: With the removal of Business Asset Disposal Relief and rollover relief, those planning to sell or gift properties will face higher CGT bills.
- Pension Contributions: Reassess pension strategies due to the loss of relevant earnings status.
Next Steps for FHL Landlords
Act now to prepare for these changes:
- Consult a Tax Advisor: Review your financial position and tax strategy.
- Maximise Capital Allowances: Make planned purchases before April 2025.
- Consider Selling or Gifting: Complete any planned property sales or gifts before the regime changes.
- Reassess Pension Contributions: Adjust your strategy in light of the changes to earnings qualifications.
With major changes on the horizon, FHL landlords should plan ahead to protect their financial interests.
Disclaimer:
While we have made every effort to ensure that the information on this website is accurate and up-to-date, tax laws and regulations are subject to change and may vary based on individual circumstances. The content on this website is provided for general informational purposes only and does not constitute professional advice.
The information contained on this website should not be relied upon as a substitute for specific, tailored advice from a qualified professional. We strongly recommend that individuals and businesses seek professional consultation before making any decisions or taking any actions based on the information provided here. We do not accept any liability for any loss or damage, direct or indirect, arising from reliance on the information on this website. Use of this website and the information contained within is at your own risk, and no responsibility will be taken for actions taken or not taken based on the content of this website.
