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Axe falls on tax benefits for Furnished Holiday Lets

Newsletter issue – September 2024

The Government has published a policy paper confirming the abolition of the Furnished Holiday Lettings (FHL) tax regime.

It will mean that property investors will no longer get the existing tax benefits of FHLs from next April.

The previous Conservative government had unveiled plans to scrap it in the Spring Budget to help free up property stock and fund the National Insurance cuts.

Published on 29 July, the documents set out confirmation of the move that was introduced in the Spring Budget in March under Rishi Sunak's premiership. The new Labour government has rubber stamped the move after it failed to get through parliament in time ahead of the general election.

What does it mean?

There are four principal elements of the policy, according to HMRC's statement, which read:

"This change will remove the tax advantages that current furnished holiday let landlords have received over other property businesses in 4 key areas by:

• applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax
• removing capital allowances rules for new expenditure and allowing replacement of domestic items relief
• withdrawing access to reliefs from taxes on chargeable gains for trading business assets
• no longer including this income within relevant UK earnings when calculating maximum pension relief

"The measure promotes fairness and aligns the tax rules for furnished holiday lettings with those for other property businesses."

Among those affected will be individuals, corporates, and trusts who operate or sell FHL accommodation.

The key dates are as follows, with the new rules taking effect:

• on or after 6 April 2025 for Income Tax and for Capital Gains Tax
• from 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains

A new anti-forestalling rule has already applied from 6 March 2024. The aim is to "prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules," HMRC stated.