The landscape of Furnished Holiday Lets (FHL) in the UK is about to change significantly. The Spring Budget 2024 confirmed that the FHL scheme will be removed, a decision that will have a major impact on landlords, businesses, and property owners. With these changes coming into effect in April 2025, it’s crucial to understand what this means.
Key changes and timeline
From 6 April 2025, for individuals, and 1 April 2025, for businesses, the special tax benefits associated with FHLs will no longer apply. The government has already published draft legislation, and while some clarifications have been provided, further guidance from HMRC is expected before the changes take effect.
What happens to existing FHL landlords?
If you already own an FHL, there are a few important things to consider. The removal of the scheme means that any capital allowances claimed in the past will transition into your standard property business. You won’t face balancing charges at the point of change, and any unrelieved losses can still be carried forward against future property income.
Ownership considerations for couples
For married couples and civil partners who co-own an FHL, changes in taxation could affect how rental income is split. From April 2025, income from jointly owned properties will automatically be taxed equally, unless the property is held as tenants in common. This allows income to be taxed according to ownership share, but it must be made within 60 days of signing and remains in effect until ownership changes.
Capital Gains Tax implications
If you’re considering selling, gifting, or replacing an FHL property, timing is key. Selling or making a gift before April 2025 could allow you to benefit from existing Capital Gains Tax (CGT) reliefs, such as gift hold-over relief or business asset roll-over relief. If you’re planning to reinvest, properties like guesthouses or hotels may still qualify for certain tax reliefs. However, special anti-forestalling rules apply if contracts are signed after 6 March 2024 but don’t complete until after April 2025, so it’s important to ensure your transaction is structured correctly.
Inheritance Tax
You can give your holiday let to a family member of family Trust free of Capital Gains Tax up until April 2025. Don’t miss out on an opportunity to save your family 40% tax.
Should you consider a different business model?
For some landlords, shifting from a holiday let model to a full trading business may be a way to retain some tax advantages. This typically involves providing additional services, such as meals or daily housekeeping, to move beyond property rental and into hospitality. The rules surrounding this are complex, and it’s worth seeking professional advice to determine whether this approach is viable for you.
What should you do next?
With the FHL scheme set to end in April 2025, now is the time to review your financial position and explore your options. Whether you need to plan for capital allowances, restructure ownership, or consider alternative property investment strategies, acting early will help you make the most of the transition.
If you’re unsure how these changes will affect you, we’re here to help. Contact us today for tailored advice on how to prepare for the new landscape of property taxation.
Disclaimer: This is intended for informational purposes only and does not constitute financial advice. Please talk to us before making any financial decisions.