We are writing to advise you on the proposed changes to the tax rules relating to Furnished Holiday Let (FHL) accommodation.
For many years taxpayers who own holiday homes which are let out to the public on a commercial basis have benefitted from numerous tax reliefs, providing they meet the conditions of a “Furnished Holiday Let” (FHL) property.
Most notably, these relate to Capital Gains Tax (CGT) reliefs which enable taxpayers to give away or sell their FHL properties at preferential rates of tax.
During the Spring Budget presentation, the Government announced its intention to abolish FHL properties’ special tax status. This has not yet been passed into law, however, it is prudent to assume that the exceptional tax reliefs associated with holiday homes will no longer apply from 6 April 2025.
This means:
- Gifts of FHL Property will be taxable
If you wish to gift a FHL property to a family member such as your children or grandchildren, under current rules it is possible to elect to defer tax and reduce an immediate Capital Gains Tax (CGT) bill to nil.
If you wait until after 5 April 2025, you will be treated as if you have sold the property at its Open Market Value (OMV) and will pay either 18% or 24% tax on the transfer.
- Sales of FHL Properties will no longer be eligible for 10% tax rate
Under current rules, it is possible to claim Business Asset Disposal Relief (BADR) on the sale or winding down of a FHL business* and restrict the rate of CGT to just 10%.
*Please note this relief is only available on the sale of a FHL business. If your FHL business consists of one property then a BADR claim will be available, however, if you sell one out of six FHL properties, it is less likely.
According to current proposals, the 10% CGT-relief is due to be removed and any sales of FHLs will be subject to rates of 18% and 24% of CGT.
Furthermore, FHL owners may currently deduct finance costs in full, whilst landlords of ordinary long term residential let properties may not.
Under the proposed changes to the rules, mortgage interest incurred on FHL properties will no longer be fully deductible and will be restricted to a basic rate tax reduction instead. Therefore, if the mortgage interest you incur is significant, you may wish to consider tax planning to alleviate these charges.
It is advisable to review your FHL properties’ status to ensure that you make the most of tax planning opportunities whilst they are available and reduce your exposure to higher taxes in future.
As with any tax planning, it is essential that any major changes to the structure of your business or the administration of your estate is considered within the context of your wider affairs and plans for the future.
If you are considering:
- Winding up your FHL property business in the near future;
- Passing assets down to the next generation; or
- Re-structuring your FHL business to reduce tax
We recommend tax advice is sought right away.
I do hope this is helpful. If you have any questions, please do not hesitate to get in touch with our Tax Advisory team for more information.
Kind Regards
Duncan Young
Chairman
SANDERSON YOUNG