There is much speculation about next month’s autumn budget, the first from Chancellor Rachel Reeves. Some changes have already been announced. These include scrapping the tax rules currently applicable to Furnished Holiday Lets (FHLs).

This legislation was originally created by the previous Chancellor, Jeremy Hunt, within the Conservative government. The Labour government intends to proceed with these planned changes.

To qualify as a furnished holiday let, properties:

• must be available for short-term letting to the public for 210 days and actually let for 105 days or more in each tax year, and
• should not be used as a long-term let of over 31 days for significant periods.

These properties are to become part of landlords’ UK or overseas property businesses. In announcing its autumn budget, the government confirmed plans to treat FHLs the same as long term rental properties from April 2025.

What are the changes involved?

Tax advantages are to be removed for FHLs by:

• applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax
• removing capital allowances rules for new expenditure and allowing replacement of domestic items relief
• withdrawing access to reliefs from taxes on chargeable gains for trading business assets
• no longer including this income within relevant UK earnings when calculating maximum pension relief

Transitional rules are planned to ease the implementation of this change. As FHLs become part of landlords’ wider property portfolios, the following steps apply:

• Instead of beneficial capital allowances treatment FHL properties will instead be eligible for ‘replacement of domestic items relief’. This is in line with other property businesses.
• FHL properties will be part of the person’s UK or overseas property business as appropriate — that property business will then include the amalgamated profits and losses of all the properties in that business.
• Any FHL business losses after repeal can be offset against future years’ profits of either the UK or overseas property business as appropriate.
• Eligibility for reliefs will cease unless existing conditions apply in a future year and FHL conditions are satisfied before repeal.
• If a business ceases trading prior to the abolishment of the FHL scheme, relief may continue to apply to a disposal occurring within three years.

The demand for holiday lets in the UK is predicted to grow by 2.24% in the next five years (Statistica Vacation Rentals report). These planned tax rule changes are set to impact this growth as landlords consider whether holiday rentals remain a sufficiently lucrative investment.

It’s certainly all change for the FHL sector this autumn!

Are you a landlord?

Do you own holiday rental properties?

Explore how the imminent changes affect you. Spicer & Co is a family-run Chartered Accountancy practice based in Dunstable, Beds. Property is a specialist focus and you are welcome to enjoy an initial discussion without obligation. Contact us for a coffee and property tax pointers.