The Chancellor plans to proceed with the abolition of the Furnished Holiday Lettings (FHL) tax regime starting in April 2025, according to newly proposed legislation. This change will eliminate the tax benefits that landlords of short-term holiday accommodations currently enjoy compared to those offering standard residential rentals.
The government projects an increase in tax revenue, expecting to raise £35 million in 2025-26, growing to £140 million in 2026-27, and reaching £245 million by 2028-29. From April 2025 onwards, income and gains from FHLs will be classified the same as other property income and gains.
The reform will impact the following areas:
Finance Cost Restrictions: Loan interest will be limited to the basic income tax rate.
Capital Allowances: Removal of allowances for new expenditures, permitting relief only for replacement domestic items.
Chargeable Gains Reliefs: Withdrawal of access to these reliefs for trading business assets.
Pension Relief Calculations: Exclusion of FHL income from relevant UK earnings for pension calculations.
Transitional rules will be introduced for existing FHLs that are midway through expenditures on ongoing projects, affecting the treatment of capital allowances with a short-term allowance.
While losses can still be carried forward against future property business profits, current reliefs such as roll-over relief and business asset disposal relief will be removed. Transitional rules will also be applied here.
An anti-forestalling rule, effective from 6 March 2024, will be implemented to prevent tax avoidance.