The Abolition of Furnished Holiday Let Rules: What You Need to Know and Do Before April 2025

If you own a Furnished Holiday Let (FHL), the changes coming in April 2025 could affect you and you may need to consider acting before the new rules come into force. The abolition of the FHL tax regime will mean that your property will no longer benefit from the special tax rules currently in place. Instead, it will be taxed under the general rules for property businesses. This change brings important tax implications, and now is the time to assess how these changes affect you and plan your next steps.

What’s Changing?

From 6 April 2025 (or 1 April 2025 for Corporation Tax), properties that currently qualify as Furnished Holiday Lets will no longer be treated as separate businesses for tax purposes. Instead:

• Income Tax: FHL profits will no longer qualify for full finance cost relief. Loan interest relief will be restricted to the basic rate of Income Tax.
• Pension Contributions: Income from former FHLs will not count as Relevant UK Earnings for personal pension contributions.
• Capital Gains Tax (CGT): FHLs will lose eligibility for CGT reliefs such as Business Asset Disposal Relief (BADR) and Rollover Relief.
• Joint Ownership Rules: Income from jointly owned FHLs will follow standard property income rules, where profits are taxed based on beneficial ownership.
• Capital Allowances: The ability to claim capital allowances for FHL expenditure will cease, with domestic item replacement relief applying instead.

These changes mean higher potential tax liabilities for many property owners, so it’s essential to act now.

Key Actions to Take Before 5 April 2025

1. Review Ownership and Income Splits

From April 2025, the Joint Property Rules will apply to former FHL properties:

• Income will default to being split in proportion to ownership shares.
• For married couples and civil partners, income is taxed 50:50. In the majority of cases an election will need to be made using Form 17 to declare actual ownership proportions.

What to Do:

• If you and your partner share income unequally, ensure your beneficial ownership reflects this.
• Consider a deed of trust to formalise unequal ownership and, if necessary, submit Form 17 to HMRC before the rules take effect.
• Seek advice to ensure compliance with any SDLT or LBTT implications.

2. Maximise Pension Contributions

FHL profits currently qualify as Relevant UK Earnings, enabling tax-relieved pension contributions. From April 2025, this will no longer be the case.

What to Do:

• Review your current pension contributions.
• Consider making additional contributions in the current tax year while your FHL income qualifies.

3. Accelerate Capital Expenditure

Capital allowances will no longer apply to new FHL expenditure after April 2025. Existing allowances can still be written down, but domestic item replacement relief will take over for new purchases.

What to Do:

• If you’re planning property upgrades or purchases, bring this forward to take advantage of current capital allowance rules.
• Check whether a claim can be made for embedded capital allowances on items existing in the property at the date of acquisition.

4. Consider Timing of Property Sales

The loss of CGT reliefs such as Business Asset Disposal Relief (BADR) and Rollover Relief may result in higher tax bills for property disposals after April 2025.

What to Do:

• Evaluate whether selling your property before April 2025 would result in a better tax outcome.
• If selling is not feasible, consider restructuring your property portfolio to optimise future tax liabilities.

5. Carry Forward Losses

Losses from FHL properties as of 5 April 2025 can be carried forward and offset against profits from general property businesses.

What to Do:

• Ensure that all eligible losses have been accounted for.
• Discuss loss planning strategies with your accountant to maximise future relief.

The Clock Is Ticking — Act Now!

The changes to the FHL regime are significant and therefore acting before 5 April 2025 is critical to ensure you minimise tax liabilities and make the most of any remaining reliefs.

How We Can Help

At Johnston Smillie, we specialise in property tax advice and can guide you through these changes. Whether it’s reviewing your portfolio, restructuring ownership, or planning your next steps, we’re here to help. Contact us today to arrange a consultation.

 

This article is for general guidance only and does not constitute professional advice. For tailored advice, please get in touch with our team.