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Holiday Homes: Impending Changes to Tax Regime for FHLs
Holiday homes
Holiday homes are a popular farm diversification activity and many farmers were disappointed by the new Chancellor’s confirmation that the special tax regime for furnished holiday lettings (FHLs) will be abolished in April 2025, albeit with transitional measures so that, where an existing holiday home will continue to be let:
There should be no clawback of capital allowances previously claimed under the FHL tax regime. And any remaining pool of capital allowances expenditure up to March 2025 should continue to be eligible for writing down allowances until it is exhausted.
Any unused FHL losses carried forward at March 2025 should remain eligible for deduction from subsequent profits.
For existing FHLs, these measures may (depending on the 2025 Finance Act) provide a final opportunity to secure capital allowances on fixtures and equipment expenditure incurred by March 2025.
Income tax
From April 2025, the special tax treatment of FHLs (as compared with other residential lettings) will cease to apply:
Plant/machinery capital allowances will no longer be available for new expenditure. Up to now, capital allowances have often provided up front tax relief for the full capital costs of kitchen units, sanitaryware, electrics, heating and water systems, and other fixtures, furnishings and systems in holiday lets.
Interest costs will cease to qualify for income tax relief at the taxpayer’s marginal rate. Instead, only basic rate income tax relief will be available for interest.
FHL profits will cease to be counted as ‘earnings’ for pension contribution purposes.
The loss of these advantages will increase owners’ income tax liabilities – especially where there are borrowings or when improvements are undertaken.
Capital gains tax
From April 2025, FHLs will also cease to qualify for CGT reliefs such as holdover relief, rollover relief and business asset disposal relief (BADR).
An anti-forestalling rule will block the availability of BADR for some transfers from 6 March 2024 that are uncommercial or between connected persons. In other cases, where a FHL business ceases in 2024/25, CGT business asset disposal relief (BADR) may still apply on a disposal of the property within 3 years after the business cessation date.
Please contact us if you would like to discuss your property.