Proposal For The Abolition of Furnished Holiday Lettings (FHL) Tax Regime

The classification for a furnished holiday let was introduced in 1984, offering more favourable tax treatment for short-term lettings within the property investment sector. In abolishing these tax benefits for furnished holiday lettings, HMRC aims to ensure fairness by eliminating the tax advantages that furnished holiday let landlords currently enjoy over other residential property landlords. This is driven by concern that properties have been removed from the long term letting market for use as Airbnbs or other short term lets, with negative impact on local communities.

However, if enacted as drafted this change will affect all individuals, corporates, and trusts operating or selling FHL accommodations, which goes far beyond the main target. In particular farmers who have diversified or those for whom holiday lettings are their main income. Here’s what you need to know and how to prepare:

The key changes to be aware of

• FHL income and gains will now be treated as part of a general property business, aligning with other property income and gains.
• Benefits like exemption from finance cost restriction rules, availability of capital allowances, access to trading business asset capital gains tax reliefs, and inclusion in relevant UK earnings for pension relief will be removed.
• FHL properties will be reported as part of the overall property business, simplifying reporting but removing specific FHL advantages.

The draft policy issued by HMRC go into much more detail that you should ensure you are familiar with.

If you are to be impacted by this legislation, we would highly recommend that you assess the impact on your current and future financial strategies, considering the loss of specific tax benefits.

Ensure that your bookkeeping reflects the new rules, integrating FHL income with other property income. You may need changes to your systems and processes to ensure that you can adhere with the proposed legislation. We would always advise that you seek professional advice to navigate these changes effectively and ensure compliance.

Existing capital allowances can still be claimed under current rules. It should be noted that if you have transactions planned that rely on CGT reliefs being available, there is now a limited period for this to occur.

There is an opportunity to bank capital allowances for any expenditure before April 2025 and retain these pools as deductions from general property income in future years, so any historical capital allowances should be reviewed as soon as possible.

Vicky Prior, partner and tax specialist at Forrester Boyd commented; “This draft legislation comes as no surprise, as the changes were announced at the Spring Budget 2024. My particular concern however is with regards to the impact on some caravan parks that do not have extensive facilities such as restaurants or pools that are probably relying on qualification as FHLs to access various reliefs at present. Previous lobbying by interested parties was hoped to result in some exemptions, but this does not appear to have happened. Comments on the draft legislation can be made until 15 September 2024, so it remains to be seen whether carve outs will be made.”

If you require advice in relation to any of the impacts this draft legislation will have on your business, please do get in touch with Forrester Boyd at info@forrester-boyd.co.uk.