Abolition of the Furnished Holiday Let rules
For anyone who owns one or more Furnished Holiday Lets (FHLs), either directly or through a limited company this is a significant change.
Until April 2025, if an individual owned and let out a furnished holiday let, broadly a holiday home let out to different individuals for short periods, there were a number of tax advantages that in many respect treated this activity as a trade rather than as an investment:
- Capital allowances, that is an immediate write down against tax for the cost of furniture, white goods etc.
- On disposal a lower rate of tax (10% on gains with a lifetime allowance of £1 million) rather than the normal residential rate of capital gains tax, now 18 or 24%
- The ability to defer a gain on disposal either into another business asset or if gifted to another individual
- Income was counted as pensionable, so increasing the potential for personal pension contributions
To give an example of how much this could cost in extra tax, if a FHL was purchased for £250k, qualified throughout as a FHL and was sold by a higher rate taxpayer for £325,000 the additional capital gains tax due will be just over £10,000.
This is the continuation of a trend, being the reluctance by HMRC to accept that any interest in properties amounts to a business or trade, but is instead a passive investment and so should not benefit from any of the tax-breaks available to those carrying out a business.
Apart from noting there will be rules to prevent an artificial acceleration of a sale before the new rules come in to access the reduced CGT rate, there is no detail on any transitional rules that will be needed due to the abolition of these reliefs and we await the draft legislation to be published in due course.
We suspect that this will generate quite a bit of negative commentary and pushback from group’s representing holiday cottage owners over the next few months.
If you have any questions around these changes, please contact us.
