Abolition of the furnished holiday lettings tax regime: what landlords need to know

In this year’s Spring Budget, the government announced it would be scrapping the existing furnished holiday lettings (FHLs) tax regime.

A new measure, which will introduce specific tax treatment and separate reporting requirements for furnished holiday lettings accommodation, will come into effect from April 2025.

This is likely to have tax-related implications for UK individuals, corporates, and trusts that operate or sell FHLs.

In this article, we examine what makes an FHL and what landlords need to know ahead of next year’s changes…

What’s an FHL, I hear you ask?

First, let’s clarify what categorises property as an FHL, versus other forms of residential/commercial property.

For a property to qualify as a furnished holiday let (FHL), it must be furnished and available for letting for a minimum of 210 days per year, with at least 105 of those days being actual lettings. It should also not be used as a long-term let of more than 31 days for significant periods.

Under current rules, FHL properties are eligible for roll-over relief, business asset disposal relief, gift relief, relief for loans to traders, and exemptions for disposals by companies with substantial shareholdings.

After the changes, eligibility for these reliefs will end. However, for purposes of transition, where criteria for relief includes conditions that apply in a future year, these specific rules will not be disturbed where the FHL conditions are satisfied before repeal.

From April 2025, income and monetary gains earned through an FHL will be treated just as any other property income and gains or form part of the person’s UK or overseas property business.

This will remove the tax advantages afforded to landlords who offer short-term holiday lets over those operating standard residential properties, such as buy-to-let long-term tenancies.

Given the complexity of the changes, if you are the owner of an FHL, you may wish to seek out professional advice and guidance from a trusted accountant to help you navigate the transition successfully.

How the expertise of an accountant can help

Firstly, an accountant can review the tax implications for you specifically, providing a detailed assessment of how the removal of the current FHL tax regime could impact your overall tax position as a landlord.

They can also help you identify potential areas of tax relief which may be available to you. In addition to exploring possible deductions for maintenance, repair, and other allowable expenses, they can investigate whether you qualify for property business reliefs or the basic rate of income tax relief on loan interest for long-term lets.

Working alongside your accountant, you may also wish to explore the benefits of property portfolio restructuring. A range of solutions could be applied to help you achieve an optimal long-term financial outcome; these structural changes could include transitioning to a traditional long-term letting, selling your property or setting up a property holding company. An accountant can explore the potential tax implications, including capital gains tax (CGT), as well as discuss with you the most advantageous timings for actioning your restructuring.

Additionally, as landlords will no longer benefit from the inclusion of FHL income in pension contribution calculations, a professional accountant can help you to review your overall pension and investment outlook and help you to anticipate how this aspect of your financial plans may be affected by the FHL tax regime changes.

Finally, your accountant can provide guidance and recommendations to help you manage your cash flow. This could be creating cash flow forecasts as well as supporting you with targeted advice on loan restructuring to adapt to changes in interest rate tax treatment. They can also help you to address cash flow management if you face a shift in income regularity, from short-term seasonal peaks to the cash flows indicative of longer-term tenancies.

In these ways, an accountant can be a crucial ally in helping landlords to prepare for and adjust to the new tax landscape as smoothly as possible.

To discuss your circumstances or goals with a member of the Champion team, please call Dale Swift on 0161 703 2500 or email dale.swift@championgroup.co.uk.