Furnished Holiday Lets - 2025 Changes

4 days, 1 hour ago by Oliver Atkinson

For many years now owners of Furnished Holiday Lets (FHL’s) have enjoyed a favourable tax treatment from HMRC on their properties compared to buy to lets. Sadly, for the owners of such properties, as of April 25, this will be coming to an end and their tax treatment will be bought more in line with buy to let properties which are typically subject to substantially less generous tax treatments.

We have outlined below some of the key tax treatments and how they will be changing post April 25.

Mortgage Interest

Current rules: The full mortgage interest on FHLs is treated as a deduction from rental income for income tax purposes.

Rules Post April 25: FHL owners will no longer be able to claim the full interest on their mortgage. Post April 25, individual landlords can still obtain relief for finance and mortgage interest costs, but at the basic rate of Income Tax of 20%, in the same way as other buy to let landlords. Companies are not subject to the finance cost restriction rules.

VAT

Current Rules: FHL businesses with rental income exceeding £90,000 should be registered for VAT, i.e. the same threshold that is applied for all other businesses.

Rules Post April 25: No changes to the current rules.

Capital Gains Tax

Current rules: Capital Gains Tax on the disposal of FHL’s may currently qualify for Business Asset Disposal Relief, where the first £1m of lifetime gains are taxed at 10%.

Rules Post April 25: Capital Gains Tax on the disposal of FHLs will no longer qualify for Business Asset Disposal Relief and will instead be subject to the same rate of CGT as other residential properties, CGT at 18% for basic rate tax payers or 24% for a higher rate tax payer.

Capital Allowances

Current Rules: Capital allowances can be claimed on qualifying capital expenditure relating to fixtures, furniture or furnishings. Qualifying expenditure can have an incredibly broad scope, so can range from purchase of white all the way through to the installation of a new swimming pool.

Rules Post April 25: Capital allowances are no longer available on fixtures, furniture or furnishings on a FHL. Capital allowances claimed prior to April 25, can continue to be claimed in future years through the writing down allowances, balancing allowances and small pool claim.

Replacement of Domestic Items Relief will then be available on replacement items.

Business Rates

Current rules: General guidance on this area is sparce, however FHL’s are often liable to business rates rather than council tax.

Rules Post April 25: No changes to the current rules.

For further information and support, please contact us.