The favourable tax treatment previously given to furnished holiday lets (FHLs) will be abolished from 1 April 2025 for corporation tax and 6 April 2025 for income Tax. Going forwards, income from a FHL will be treated in line with all other property income, in a bid to promote fairness and align tax rules between FHLs and other property businesses.
The current rules provide beneficial tax treatment for FHLs so that they are treated more like trading rather than property businesses. This is in line with hotels, care homes and common areas within student accommodation.
The scope for capital allowances claims
When the abolition comes into force next year, those who run FHLs will no longer be able to claim capital allowances on new expenditure, although there will be transitional rules with a short-term allowance where an existing FHL is partway through an ongoing project. Any new expenditure incurred on or after the operative date will be treated under the property business rules. However, where an existing FHL business has an ongoing CA pool of expenditure, they can continue to claim writing-down allowances on that pool.
Planning considerations
Those running a FHL business or operating FHLs have a window of opportunity from now until April 2025 to utilise the tax reliefs available. In the case of capital allowances, they can make claims on their qualifying properties. If completing a CA claim has been put off due to cashflow reasons or non-urgency, now is the time to make the claim so the tax advantage can be secured.
If the FHL business is loss making, a CA claim will still be beneficial as the CA claim will increase the losses which can be carried forwards to future periods and off-set against future profits. There is no limit on how far back in time the expenditure was incurred to carry out a CA review, provided the FHL is still in existence.
Income tax implications to be aware of
While the capital allowances changes will take effect from 1 April 2025, 6 April will see the reclassification of FHL income as general property income. This aligns it with other rental income streams and ends certain perceived preferential treatments. As per the rules currently, FHL owners can fully deduct finance costs, such as mortgage interest, against rental income, but this will be capped at the basic rate of income tax – meaning the possibility of significantly increased tax liabilities for those with substantial financing costs.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData
