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Tax shock for furnished holiday let owners – how to react while there’s still time

Holiday Lets

A major tax shock for furnished holiday and short-term let owners – how to react, while there’s still time

If you are involved in the Furnished Holiday Let (FHL) – the short-term lettings - business you will probably be aware by now that there were some far reaching tax related changes introduced by Chancellor Jeremy Hunt in his Spring Budget 2024.

This has come as a shock and a blow to many people who operate FHL businesses of all shapes and sizes, but despite the effects the changes will have, for example, on income tax, capital gains tax (CGT), loan interest relief, expenses you can claim, capital allowances, incorporation relief and pension relief, there are still things you can do to minimise the impact.

Good advice is essential, so consulting your tax advisor at your earliest opportunity is advised, as the measures don’t come until April 2025, this to give these landlords time to adjust their affairs accordingly. However much professional advice helps, it’s always a good idea to get a good understanding of the issues before hand, so you could do yourself a favour by studying this new TaxCafe Guide – see details below – “Furnished Holiday Lets: big changes ahead” written by one of the country’s leading property tax experts, Carl Bailey BSc FCA.

What’s the issue?

The Government announced that it will abolish the furnished holiday lettings (FHL) tax regime from April 2025. It will remove the favourable tax treatment of FHLs as they are now taxed as a business, putting them on a par with standard long-term lettings (buy-to-lets) which are taxed under a less favourable tax regime.

FHL has become a victim of its own success as more and more landlords had been switching over from standard long-term lets to short-term Airbnb style lettings (1) because the higher rental rates make them more profitable, albeit there’s extra work involved, and (2) the favourable tax regime based on a business operation as opposed to being taxed as an investment, as is the case with standard buy-to-lets (BTL).

A unique type of business 

Furnished holiday lets (which include many Airbnbs) are a unique and special type of business, lying somewhere between a trade and property letting. They come in all shapes and sizes, yet have a great deal in common.

For over 40 years, the UK tax system has recognised this through a special tax regime that provides many of the same reliefs as are provided to a trading business, while still preserving the unique features of this property-based business.

Unlike most other landlords, furnished holiday let owners have been able to benefit from full tax relief on their mortgage interest and business asset disposal relief (10% capital gains tax) when they sell their businesses.

The rise of on-line bookings

The rise of online booking platforms has allowed the furnished holiday letting sector to blossom, with over 89,000 furnished holiday lets currently estimated to be in operation in the UK alone, compared with just 8,000 in 2017.

But the sector’s success now appears to have become its undoing, as it has attracted the ire of Chancellor of the Exchequer, Jeremy Hunt, who announced the abolition of the special tax regime in his Budget on 6th March 2024.

Fortunately, however, this death sentence is not to be carried out until April 2025, giving furnished holiday let owners time to plan for the transition, mitigate the impact, and make the most of the special tax regime while it still lasts.

Taxcafe has published its timely new guide which seeks to help landlords make the most of the current beneficial regime.  

It’s also important to note that in the March Budget the Chancellor also announced another major property tax change which may require more timely action: the abolition of stamp duty land tax multiple dwellings relief. This change takes place on 1st June 2024 and affects some of the tax planning furnished holiday let owners may wish to carry out.

So, the time to act is now, to act quickly and decisively!

What's the Government’s strategy behind this… 

It seems the Government’s intention is to remove the current tax advantage for FHL landlords to limit the growth of short-term letting businesses which in some locations, particularly coastal holiday hotspots are affecting the availability of long-term lettings for locals and transient workers.

These changes will undoubtedly have a significant impact on those operating FHL businesses and they will hit particularly hard those people who are operating medium to large furnished holiday let operations.

Following Office of Tax Simplification recommendations

The changes follow closely the November 2022 Office of Tax Simplification (OTS) recommendations set out in a report which summarised some options available to the Government to reform the tax regime for FHL property operated by individuals.

The Office recommended that (1) the Government consider whether there is a continuing benefit in having a separate tax regime for furnished holiday lettings and (2) whether a statutory ‘brightline’ test should be introduced that would allow certain tax benefits were to continue for a property business which meets a certain level of trading/activity. It would seem that the Chancellor made no reference to this second point in his Budget announcement.

Some key points:

Current tax benefits enjoyed by FHL businesses:

• tax relief on loan interest - fully deductible against taxable profits

• capital allowances pertaining to tax relief on fixtures as is the case with commercial properties

• capital gains tax reliefs – the business asset disposal relief (currently 10% rate on sale), plus a rollover relief, with gifts hold-over relief

• the ability to claim profits from FHL business as relevant earnings for owner’s pensions

• the ability to vary the taxable income for jointly held FHLs between married couples or civil partners away from the default 50:50 split. 

A major impact

There is no doubt that the removal of the above benefits for FHL operation will have a huge impact on some people. It is possible that more detail will come available when the legislation is published regarding substation businesses and whether some reliefs will still be available given certain criteria, for example a minimum number of properties, the amount of time the owners spend dealing with the business and no personal use of the facilities.

TaxCafe guide: Furnished Holiday Lets: big tax changes ahead

As will all these Taxcafe guides, this one takes a detailed look at all the current tax benefits of furnished holiday lettings.

It aims to help you maximise the income tax benefits of the current regime before it’s too late and minimise the cost of these changes going forward, for example:

  • Business Asset Disposal Relief (10% capital gains tax)
  • Rollover relief (allowing you to sell properties and reinvest without paying CGT)
  • Holdover relief (allows properties to be gifted with no immediate CGT bill)
  • Incorporation relief (allows properties to be transferred into a company tax free)
  • How to save up to £140,000 in capital gains tax by making the most of the current tax reliefs.
  • How to completely avoid CGT by gifting a property to a family member to use as their home.
  • Why furnished holiday let owners should maximise their pension contributions this year.
  • The benefits and drawbacks of transferring your property business into a company.
  • Why company owners will be able to continue enjoying many of the existing tax benefits.
  • How to enjoy huge stamp duty savings before multiple dwellings relief is abolished on 1st June 2024.
  • How to restore all the benefits of the furnished holiday letting regime by providing additional services and achieving ‘trading status’.
  • Why now is the ideal time for a FHL owner to pass properties to family members: in one example a mother and son are able to save almost £1 million in inheritance tax and over £140,000 in CGT!

The guide tells you everything you need to know about saving tax now and in the future if you own furnished holiday lets.


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