The government published draft legislation confirming that it was going to proceed with the abolishment of the FHL scheme, noting that it would come into effect on or after 6 April 2025 for income tax or CGT and from 1 April 2025 for corporation tax and for corporation tax on chargeable gains
The government has confirmed that the furnished holiday let (FHL) scheme will be abolished next year and has published draft legislation outlining proposals.
The government published draft legislation confirming that it was going to proceed with the abolishment of the furnished holiday let scheme, noting that it would come into effect on or after 6 April 2025 for income tax or CGT and from 1 April 2025 for corporation tax and for corporation tax on chargeable gains.
Former Chancellor Jeremy Hunt had proposed to remove the furnished holiday let scheme in the Budget earlier this year, adding that it would raise £245 million per year by 2028-29.
The furnished holiday let scheme means landlords can claim capital gains tax relief for trades, are entitled to plant and machinery capital allowances, and products count as earnings for pension purposes. They can also deduct mortgage interest payments from rental income.
Once the scheme is repealed, these tax advantages will be removed, and FHL properties will form part of the person’s UK or overseas property business and come under the same rules of non-furnished holiday let businesses.
The government has proposed “specific transitional rules” around capital allowance treatments, how losses are considered, and reliefs landlords are eligible for.
It said that the change promotes fairness and aligns the tax rules for FHLs with those for other property businesses.
Ben Handley, tax partner at BDO, said that now draft legislation had been published that confirmed the government was going to proceed with abolishing the FHL regime, it would be sensible for anyone affected to consider their options now, plan ahead and make use of the tax reliefs currently available.
He added: If you usually let out your holiday home sufficiently for it to qualify as a FHL – so 105 days out of 210 days available for letting – then there are choices to be made. If the current arrangements suit you, there may be no need to change but it is sensible to check how much extra tax you will pay.
Another option is to sell the property before 5 April 2025. Although the sale may qualify for business asset disposal relief, and even though the headline rate of tax is also now lowered to 24% compared to 28% in the prior tax year, the annual gains exemption has also reduced to £3,000, so it would be sensible to seek advice on your likely tax charge before you complete the transaction. Remember that capital gains on property need to be reported and the tax paid within 60 days of completion, he added.
Handley said another option could be to pass the property to family, as giving an asset to a “connected relative” is treated as a “disposal at market value”.
However, as a FHL property is a business asset, it may be possible to elect to ‘hold over’ any capital gain on disposal to relatives. Of course, if they subsequently sold it, CGT would be payable on any historical gains at the prevailing rate at that time, which could be higher than the 24% rate currently.
