The End Of Furnished Holiday Lettings Tax Advantages

The End of FHL Tax Advantages in England: What Landlords Need to Know

From 6 April 2025, significant tax changes will impact landlords of Furnished Holiday Lettings (FHLs) in England, ending their preferential treatment compared to traditional long-term lets. If you own or plan to invest in FHLs in England, understanding these changes is essential for protecting your income and adapting your strategy.

Here’s what you need to know.

1. Interest and Finance Costs: Changes Ahead

Currently, landlords of FHLs in England can deduct interest and finance costs in full when calculating taxable profits. From 6 April 2025, this relief will be capped at the basic rate of tax, bringing FHLs in line with restrictions on traditional residential lets.

• Corporate landlords will remain unaffected and can continue deducting these costs in full.

• Individual landlords may want to explore incorporation or alternative ownership structures to optimise tax efficiency.

2. Capital Gains Tax Reliefs: Transitional Opportunities

One of the key advantages of the FHL regime in England has been access to Capital Gains Tax (CGT) reliefs, including:

• Business Asset Disposal Relief (BADR): Reduces the CGT rate to 10% on qualifying gains.

• Business Asset Rollover Relief and Gift Holdover Relief: Allow deferral or reduction of CGT liability.

From April 2025, these benefits will no longer apply to FHLs. However, transitional rules allow landlords to:

• Claim BADR for properties sold within three years of ceasing the FHL business, provided cessation occurs before 6 April 2025.

• Utilise rollover relief for assets reinvested within the usual timeframe, as long as the FHL met qualifying conditions before the changes.

If your property has seen significant appreciation, consider ceasing FHL activity before April 2025 to lock in these reliefs.

3. Pension Contributions: Act Before the Deadline

Currently, FHL profits in England qualify as relevant earnings for pension contributions, enabling tax relief up to 100% of profits. This benefit will end on 6 April 2025, meaning FHL income will no longer count towards tax-relieved pension contributions.

To maximise your pension benefits, make contributions during the 2024/25 tax year while the current rules still apply.

4. Furnishings and Fixtures: Tax Relief Changes

Landlords of FHLs in England can currently claim capital allowances for furnishings and fixtures, often benefiting from the Annual Investment Allowance (AIA) for 100% relief on eligible expenses. From April 2025:

• Relief for new purchases will end, replaced by like-for-like replacement relief under the replacement of domestic items rules.

• Existing balances in capital allowances pools can still be claimed until fully used.

If you’re planning upgrades or replacements, consider completing these before April 2025 to maximise current allowances.

5. Simplified Profit Sharing

Currently, FHL owners in England can distribute profits flexibly between owners, offering tax planning opportunities. From April 2025, joint owners (e.g., spouses) will need to split profits 50:50, unless ownership shares are adjusted.

Landlords may need to reassess ownership structures to ensure ongoing tax efficiency.

6. Letting Flexibility: A Silver Lining

Under the current FHL rules, properties must meet strict letting and availability conditions. After April 2025, landlords in England will gain greater flexibility:

• Properties could be let as holiday rentals during peak periods (e.g., summer) and on longer-term agreements during off-peak times without risking a breach of the FHL rules.

• This could result in increased rental income by aligning availability with seasonal demand.

Key Takeaway

The tax advantages currently enjoyed by landlords of Furnished Holiday Lettings in England are coming to an end. While these changes may reduce some of the financial benefits, there are transitional opportunities to maximise reliefs and mitigate the impact.

For landlords, now is the time to review your property portfolio and consider strategies such as incorporation, adjusting ownership structures, making capital investments, or even winding down FHL operations to lock in existing benefits before 6 April 2025.

If you’re unsure how these changes affect your portfolio, get in touch. At Twenty-Eight 28 Property Group, we specialise in helping property investors navigate tax and market changes while maximising their investment returns ethically and efficiently.