Property & Construction

Furnished Holiday Let tax advantages to cease

While we can’t confidently predict what legislation will be introduced by the new Labour government, recent changes announced in the budget earlier this year are set to end furnished holiday let tax advantages from 6 April 2025. After which, FHLs will be taxed similarly to other property lettings.

27th June 2024

The end of an era?

Furnished Holiday Lets (FHLs) have long served as a valuable source of supplementary income for property developers and construction firms by transforming unused buildings and cottages into rentable holidayaccommodations, as well as being an investment opportunity in a different space to residential property letting.

Traditionally, this segment has enjoyed specific tax benefits, which include:

  • Capital Allowances: Immediate write-offs for capital expenditures against income.
  • Interest deductions: No caps on deducting interest or finance charges.
  • Capital Gains Tax (CGT) Reliefs: Including Business Asset Disposal Relief reducing CGT from 24% to 10%, alongside gift relief and business rollover relief.
  • Pension contributions: Income qualifies as relevant earnings.

However, with the changes announced in this year’s budget to end these tax advantages from 6 April 2025, property developers and construction firms should use this transitional period to evaluate the viability of their FHL ventures and explore potential adjustments. Considerations might include:

  • Transitioning to long-term rentals: Given the rising rental and utility costs, switching to an Assured Shorthold Tenancy (AST) could increase net profits, despite potentially lower turnover compared to FHLs, but with reduced operational costs.
  • Evaluating Inheritance Tax liabilities: If an FHL contributes significantly to inheritance tax liabilities, owners might consider transferring the property before the April 2025 cut-off to utilise gift relief and avoid CGT implications.
  • Ownership structures: With upcoming restrictions on interest deductions, reassessing the benefits of outright ownership versus alternative structures might be prudent.
  • Pre-deadline sales: Selling before the deadline allows owners to capitalise on the reduced 10% CGT rate, potentially reallocating capital to other investments or business assets.
  • Establishing or expanding FHLs: For those considering new FHL projects, starting before the deadline would maximise the utilisation of existing tax reliefs.

Our thoughts

For property and construction professionals, the upcoming change is not merely about tax planning, it also touches on broader investment and lifestyle objectives. With the impending regulatory changes, now is the time to reassess your property investments within your overall financial strategy. We recommend scheduling a consultation with our tax advisers and property specialists, click here….