From 6 April 2025, the Furnished Holiday Let (FHL) regime ends and income and gains from a FHL will:
- form part of a person’s UK or overseas property business
- be treated in line with all other property income and gains
Capital allowances
From 6 April 2025, you will no longer be able to claim capital allowances. However, any existing capital allowance pools will be carried forward; you will be able to claim ‘writing down allowance’ on that pool.
A relief will be available for the direct replacement of domestic items for the property.
Pensions
From 6 April 2025, profits from FHLs will no longer be treated as relevant earnings for claiming tax relief on pension contributions, or for Class 2 and voluntary Class 3 National Insurance Contribution purposes.
Mortgage intertest
Currently, mortgage interest on FHLs is treated as a deduction from rental income for Income Tax purposes.
However, from 6 April 2025, relief will be given as a 20% tax reducer, meaning for higher and additional rate taxpayers a reduction in tax relief for individuals from 40% and 45% respectively.
Jointly held assets & Form 17
The flexibility of dividing the profits between spouses and civil partners will cease and profits will be split on a 50:50 basis.
For other forms of joint ownership, the flexibility remains.
The only way for spouses and civil partners to have a non-equal profit share is to file Form 17 with HMRC. Before you start the process, you will need to check that the property is held as ‘tenants in common’ and not ‘joint tenants.’ A ‘declaration of trust’ will need to be prepared to provide evidence of the non-equal split. This is a legal document and will need to be prepared by a solicitor.
The signed form must be sent to HMRC within 60 days of signing, otherwise a new form will be needed. The split can only be backdated by 60 days
Once a Form 17 is in place it can only be amended by an updated deed of trust.
A declaration of trust can also impact the following:
- Stamp Duty – A charge could be triggered if there is a mortgage on the property
- Capital Gains Tax – The gain will not be split 50:50
- Inheritance Tax – The amount included in your estate will not be split 50:50
Capital Gains Tax
The following reliefs will no longer be available for FHLs:
6 April 2025 is a hard deadline with no transitional rules, with regard to these reliefs. It doesn’t matter how long an FHL has been operated as a business.
There’s a possibility that Business Asset Disposal Relief may still apply, but only for businesses that cease to trade before 5 April 2025.
Losses
Under the current rules, losses generated by a FHL can be carried forward to offset against future profits from the same FHL.
From 6 April 2025, any unused losses can be carried forward and treated as losses of a ‘property business’ and can be set off against all future UK rental property profits.
VAT
The rules for VAT remain unchanged, but this is something to be aware of…
Whilst residential letting income is exempt, holiday accommodation (including Airbnb) is subject to VAT regardless of whether the property is an FHL. This is because the income from a holiday accommodation forms part of a trader’s taxable turnover.
You must register for VAT on your FHL if:
- your total taxable turnover for the last 12 months goes over £90,000
- you expect your taxable turnover to go over £90,000 in the next 30 days
How to prepare…
You can read the policy paper for the abolition of the furnished holiday lettings tax regime here.
If you have any questions with regard to these changes and would like to speak to a member of the Burton Sweet Team, please contact us and we will be happy to help.