Changes to Furnished Holiday Lets Tax Regime Coming in April 2025
The UK government has announced the abolition of the Furnished Holiday Lettings (FHL) tax regime, effective from April 2025. This will align tax rules for holiday lets with those for other property businesses, removing special tax advantages such as capital allowances and reduced restrictions on mortgage interest deductions.
Currently, owners of furnished holiday lets enjoy various financial benefits that are not available to standard landlords. These include the ability to claim capital allowances, allowing them to deduct the cost of furniture, fixtures, and equipment, thereby lowering their taxable profits. FHL owners can also avoid the finance cost restrictions applied to other landlords, making the holiday letting market more attractive for property investors.
However, the government has decided to eliminate these benefits to simplify the tax system and create a fairer landscape for all property owners. From April 2025, income from holiday lets will be treated as regular property income. This means owners of furnished holiday lets will lose the ability to claim capital allowances and face the same restrictions on deducting mortgage interest costs that other landlords currently experience.
Why the Changes?
The government’s rationale behind abolishing the Furnished Holiday Lets tax regime is based on creating fairness and simplifying tax reporting. The current regime is seen as offering an unfair advantage to owners of holiday rental properties, especially in comparison to traditional landlords. With short-term holiday lets becoming more common, especially in tourist hotspots, these changes also aim to address broader concerns regarding fairness in the property market and the housing crisis in many regions.
Implications for Owners
Furnished holiday let owners should prepare for significant tax changes, which may reduce the profitability of their properties. The removal of tax benefits means that owners could see higher tax bills, prompting some to reconsider the financial viability of their holiday rentals.
Property owners should consider reviewing their portfolios and consulting with tax professionals to navigate these changes effectively.
For more detailed guidance on how this may impact your property, visit the official government announcement here.
If you have a FHL portfolio and would like to discuss your tax position post April 2025, get in touch today.