The Chancellor has announced that the favourable tax treatment furnished holiday lettings (FHLs) currently benefit from will be abolished with effect from 6 April 2025.
Background
Definition of holiday home – A holiday home is a property rented out for short-term stays, typically for holidaymakers or tourists. It is not the tenant’s main residence, and the rental period is usually shorter (e.g., a few days to a few weeks).
Currently, FHLs benefit from a range of beneficial tax rules including:
- The full amount of finance costs (i.e. mortgage interest) can be deducted from FHL income.
- On disposal of an FHL, business asset disposal relief may be available which results in a 10% capital gains tax rate applying.
- Profits from FHLs count as relevant earnings for pension purposes meaning tax-advantaged pension contributions can be made.
- Where the accruals basis applies, capital allowances on items such as furniture and fixtures and fittings can be claimed against the rental income.
- Where the cash basis applies, expenditure on furniture etc. is generally deductible as an expense of the property business.
- If your FHL business runs at a loss, the loss can be offset against other income (e.g., income from employment or other property income).
To qualify as an FHL, the property must meet the following conditions:
- The property must be available for letting for at least 210 days per year.
- The property must be let for at least 105 days per year.
- The property cannot be let for more than 155 days to the same person within a 31-day period.
From 2025-26 tax year, furnished holiday lettings will only be able to claim expenses and reliefs according to the residential letting property rules.
Please see my blog on the topic regarding claiming expenses on residential letting.
