Swift Action Required for Furnished Holiday Lets

Furnished holiday lets - swift action required before rules change to gain tax benefit, says Saffery

“Properties that qualified as furnished holiday lets (FHLs) before 6 April 2025 can still benefit from various tax reliefs not available to other rental property businesses - but not for long,” says David Bussey, Partner, Saffery, and a member of the firm’s Land and Rural Practice Group. 

These benefits include:

• being able to obtain full relief for finance costs,
• being able to claim capital allowances on furniture and equipment,
• treating FHL profits as earned income for pension contribution purposes,
• not having to divide the profits of a jointly owned FHL based on the ownership split, and
• the potential to claim various capital gains tax (CGT) reliefs and inheritance tax (IHT) Business Property Relief (BPR), subject to extra conditions.

However, from 6 April 2025, the special rules for Furnished Holiday Lets are being abolished and FHLs will be treated the same as other rental property businesses.  None of the above benefits will continue to apply past this date. 

David Bussey says: “With these changes to the FHL rules fast approaching there are still some proactive steps that can be taken to maximise benefits. For example:

• If you’re thinking about selling your FHL, doing so before 6 April 2025 could allow you to claim Business Asset Disposal Relief (BADR). This means you might pay CGT at 10% instead of 24%.
• If you can’t sell your FHL before 6 April 2025 but still want to benefit from BADR, you should stop renting it out as an FHL before this date. You then have three years to complete the sale. Note that the rates of CGT on gains subject to BADR will increase to 14% from 6 April 2025 and to 18% from 6 April 2026.
• Check whether you would benefit from making an election to split the profits based on the ownership split, rather than the default 50:50.
• Consider how to use any losses. From 6 April 2025, brought forward FHL losses will be converted into normal UK or foreign property losses. This means you can set them against profits from other property income, not just FHL profits.
• Be aware of the anti-forestalling rules which prevent the use of unconditional contracts to obtain CGT reliefs under the pre-6 April 2025 FHL rules if the contract is entered into between 6 March 2024 and 5 April 2025 and the property is transferred after 5 April 2025. These anti-forestalling rules don’t apply if the contract wasn’t intended to avoid the FHL rule changes and was made for commercial reasons or between unconnected parties.

“Equivalent changes are being made for Furnished Holiday Lets chargeable to corporation tax rather than income tax.”

For more information, please visit www.saffery.com