The total number of unincorporated landlords that declared income from renting property in 2022 to 2023 was 2.84 million (Property rental income statistics: 2024 – GOV.UK).
From April 2025, income and gains from a furnished holiday let (FHL) will form part of the person’s UK or overseas property business and will be treated in line with all other property income and gains. This change impacts those who invested in short-term property lets.
Who will be impacted by the abolishment of the FHL tax regime?
The change will impact individuals, corporates, and trusts who operate or sell furnished holiday lettings (FHL) accommodation.
The measure will have effect:
- on or after 6 April 2025 for Income Tax and for Capital Gains Tax
from 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains
What counts as a current short-term furnished holiday let?
A short-term furnished holiday let must be available for letting for 210 days and actually let for 105 days or more in each tax year and can’t be used as a long-term let of over 31 days for significant periods.
Proposed changes to furnished holiday lets?
- Finance cost restriction rules will be applied, so loan interest will be restricted to basic rate for Income Tax
- FHL properties will have capital allowances rules removed for new expenditure and replaced with domestic items relief
- Relief from taxes on chargeable gains for trading business assets will be withdrawn
When calculating pension relief, UK earnings will no longer include this income
What to consider –
Anyone who owns a furnished holiday let property needs to bear these changes in mind, however some will be impacted more than others –
- If you are looking to sell a holiday let, or shares in an FHL property company
- Properties jointly owned by spouses that are not equally split
- Anyone having renovation work which is likely to continue into 2025/26, where capital allowance claims need to be considered
Tax Tip: If you are planning any renovation work that qualifies for capital allowances, then we recommend these are carried out before the end of this tax year 2024/25.
- Those with FHL losses being carried forward
- Anyone relying on the income as part of their pension planning
- Companies who currently qualify as a trading company may be reclassified as an investment business
Individuals who have inheritance planning in place with the consideration of business property relief being available on the FHL
Any VAT implications?
Currently, if the furnished holiday lets income is over £90,000, they need to be registered for VAT. However, with residential lettings exempt from VAT, this may change. We will advise further in due course.