In the 2024 budget, the Government has announced the furnished holiday lets tax regime will be abolished from April 2025
Several announcements in this week’s budget will affect property owners. Please take a moment to see if these affect you and contact us if you need advice.
Are you thinking of selling a residential property that is not your home?
Capital Gains Tax (CGT) chargeable on the sale of residential property is currently charged at 18% and 28%. These rates are changed to 18% and 24% in 2024/25. The date on which the rate is crystallised is the date of exchange so if you are in the process of selling a property that is chargeable to CGT at the higher rate you may wish to consider deferring this until the new tax year (6th April 2024) to take advantage of the lower rate which will save 4%. Please note, however, that the annual exemption will drop from £6000 pp to £3000 pp at the same time so care will be needed.
If you are unsure if you are liable for the higher rate, please get in touch.
Furnished holiday lets tax regime abolished from April 2025:
The Government has announced that it will abolish the furnished holiday lets (FHL) tax regime from April 2025. FHL properties will be treated as long-term lets removing some of the key tax benefits for owners. These changes will take effect from 6 April 2025 (for individuals) and 1 April 20025 ( for limited companies)
What are the key tax benefits currently available to individuals who are FHL owners?
- Interest incurred on borrowings is fully deductible against taxable profits rather than limited to a 20% credit
- Beneficial capital allowances rules allowing tax relief for fixtures
- Various capital gains tax reliefs, including potential for business asset disposal relief (10% rate on sale), rollover relief and gifts hold-over relief with disposals now being taxed at 18% and 24%( from 6 April 2024), depending on your other income in the year.
- Profits from Furnished holiday lets can be treated as relevant earnings for pension purposes from an FHL held jointly by a married couple or civil partners is not caught by the default 50:50 split for income tax purposes
What will the Impact be of the furnished holiday lets tax regime being abolished?
Whilst the announcement has been made we are waiting for the draft legislation to confirm the full details of this change. Points we will need to consider and are waiting for clarification on are:
- Capital allowances are given to FHL owners for fixtures (e.g. fitted kitchens, sanitaryware, heating, plumbing, electrical and lighting) as well as furniture within the property. This often allows 100% relief in the year of expense. When the furnished holiday lets tax regime is abolished how will previously claimed allowances be treated? Will there be a clawback of some of the relief claimed, will any charge be spread or will there be transitional rules?
- What will happen to any losses brought forward from an FHL business?
We will, of course, update you once the legislation has been published.
Given the impacts of abolishing the FHL regime as outlined above, many owners will need to reassess their position. The withdrawal of the CGT reliefs available will likely result in higher tax liabilities payable in future in the event of a sale and planning for this over the next 12 months will be key.
Everyone’s position will be unique depending on levels of other income you have, whether you have a mortgage and your long-term plans.
If you operate your FHL through a limited company not all of the above will affect you and we can discuss the effects the changes will have on an individual basis.
We are here to help, so please contact us if you wish to discuss your options now.