A window of opportunity before the curtain is finally called on Furnished Holiday Lets (FHLs)

In the Spring Budget of 2024, the government announced the abolishment of FHL status. Although this was announced, no supporting details were issued which led to much speculation and questions on how the property landscape would play out. Should I sell or gift my property now? Should I continue letting on a holiday style basis, or move to a long term let? Will my cashflow be sufficient to support my needs? Subsequently, this made it difficult for owners and advisors to appropriately plan for the next phase.

However, HMRC have now issued draft legislation and notes about the upcoming changes. The specific treatment and reporting for FHLs will be removed and will soon fall in line as part of a wider property business for income and capital gains. The below table summarises the changes before and after April 2025:

*6 April 2025 for Income Tax and Capital Gains Tax. 1 April 2025 for Corporation Tax

The above points largely affect individuals as Companies do not have an interest restriction, are subject to Corporation Tax on property disposals (where as an individual pays capital gains tax) and investment property companies are able to make pension contributions.

As the new legislation is introduced, transitional rules will apply during this crossover period. For example, where the property has an ongoing Capital Allowances pool, the pool can continue to be written down.

Ultimately, this comes down to each individual’s scenario and goals, but this is a window to maximise the available reliefs and achieve personal goals. With clarity over Capital Gains reliefs, this should help to settle the market as there is now an awareness of the upcoming changes and time to plan.

With the current availability of gift hold-over relief, one example of this change may be the trigger that this is the right time for succession planning, as tax efficiently as possible, to the next generation. Not only does this help to mitigate immediate tax liabilities, but it helps to keep the property within the family and enable an individual to see the enjoyment of the property during their lifetime, without it having to be sold.

With regards to Business Asset Disposal relief, where qualifying FHL conditions are met for a property that ceased prior to the change, it may be possible to claim the relief for disposals under the normal 3-year window following the cessation of the business (This rule varies for property held in Companies).

Although a change is on the horizon, this does give opportunity for planning and a review of a property business’ affairs. With additional clarity on the tax treatment and transitional period, actions can be undertaken to utilise the available allowances and structure property businesses as effectively as possible, for the new regime after 5^th April 2025.

If you have an FHL and are considering your next steps, please do get in touch with a specialist at Old Mill.  We recommend scheduling a consultation with our tax advisers and property specialists. click here to get in touch….