Abolition of FHL Regime
Tax Question
My client has a furnished holiday let (FHL) – what happens to it from 06 April 2025 onwards when the FHL regime is abolished?
Tax Answer
Changes to the taxation of holiday lets
The Furnished Holiday Letting (FHL) regime treats qualifying residential short-term lettings as a trade for certain tax purposes. Once the regime is abolished, owners will lose the following tax benefits:
Mortgage Interest
Mortgage interest on FHLs is currently treated as a deduction from rental income for income tax purposes. From April 2025, relief will instead be given as a 20% tax credit for higher and additional rate taxpayers. This means a reduction in tax relief for individuals from 40% and 45%, respectively.
Capital Gains Tax
Capital Gains Tax on disposal of FHLs may currently qualify for Business Asset Disposal Relief (BADR). Alternatively, the gain can be ‘rolled over’ on purchases of certain new business assets.
From April 2025, the normal residential property CGT tax rate – currently 24% – will apply, and the ‘rollover’ of gains will no longer be possible. This is a hard deadline – there are no transitional rules, no matter how long an FHL has been operated as a business.
Allowable Expenses
FHL businesses are currently eligible for capital allowances. From April 2025, you will only be able to claim a deduction for the cost of replacing domestic items against your rents. Any existing capital allowances pools will be carried forward, and you will be able to continue to claim writing-down allowances on that pool.
Pension Contributions
Tax relief for pension contributions is limited to the higher of £3,600 or 100% of net ‘relevant earnings.’. From April 2025, FHL profits will no longer be treated as relevant earnings for the purpose of claiming tax relief on pension contributions.
Losses
Taxpayers may have losses to carry forward from their FHL business after repeal; losses generated from this FHL business will be permitted to be carried forward and be available for set off against future years’ profits of either the UK or overseas property business as appropriate.
Jointly held properties
Where there is joint ownership of a property between spouses in anything other than a 50:50 split, a ‘Form 17’ will need to be submitted to HMRC after 5 April 2025 along with evidence that the property is held in unequal shares. Taxpayers will no longer be able to split the profits from the property, for tax purposes, on any other basis.
If you need any assistance in this or any other matter, please feel free to get in touch.
Jack Hurren
Tax Advisor
Related Tax Questions
The Overlap Relief 2023-2024
I have a few clients with accounting year ends other than the 31 March or 5 April. As a result of this they will have ‘transitional profits’ and ‘overlap relief’ to consider when dealing wi
60-Day Capital Gains Tax Reporting for UK Residents
My client is a UK resident and has sold 2 residential properties during the tax year. Property 1 is a property in Portugal and has made a loss in May during the tax year. Property 2,
Cash Basis Conundrum
Our client had an ordinary UK property letting business that ceased during the 2023/24 tax year on 30th September 2023. In prior tax years, the cash basis was used to prepare his rental
Substantial Shareholdings Exemption
How does the Substantial Shareholdings Exemption (SSE) work?
How does the Cycle to Work Scheme operate and what is the benefit of a Cycle to Work Salary Sacrifice scheme?
How does the Cycle to Work Scheme operate and what is the benefit of a Cycle to Work Salary Sacrifice scheme?
Borehole Capital Allowances
My client has a farming partnership, they have recently paid out over £10,000 on a borehole. The borehole will be used to pump water for the crops they grow on their farm and drinking water for th
Real people, real results
Vantage Fee Protect provide market leading Tax Fee Protection
Insurance schemes through accountants.
Don’t be shy,
get in touch
Vantage Fee Protect provide market leading Tax Fee Protection
Insurance schemes through accountants.
"*" indicates required fields