Government Update On The End of The FHL Regime

Government Announcement

As announced in the last Spring Budget the former Conservative Government introduced proposals to eliminate the FHL tax regime. Doing so to try to release property stock and finance National Insurance reductions. Although the proposal did not pass through parliament before the general election. Unfortunately,  the current Labour government has revived the plans.

The current Labour Government has confirmed the end of the furnished holiday let (FHL) rules starting in April 2025. And they have released a policy paper along with draft legislation confirming this change. Full details can be found here.

We are aware of a consultation process, on the draft legislation, scheduled until September 15, 2024. During which HMRC will seek feedback on the proposed legislation. However, it remains uncertain if significant changes will result from this consultation.

Prior to this change, holiday homeowners already had increases in council tax for second homeowners, registration schemes and now investors are losing FHL allowances. These measures, though necessary to address housing shortages and local community concerns, have left many property owners feeling the pinch. Some may argue that these changes are essential to levelling the playing field and ensuring fair access to housing.  While others feel they are being unfairly targeted for owning additional properties that are boosting the economy.

What Are The Changes and Impacts

So starting in the tax year April 2025 -2026, furnished holiday rentals will be treated similarly to other types of buy-to-let investments.

For individuals, mortgage interest relief will now be limited to the basic rate of income tax. Holiday home owners will no longer be able to claim capital allowances for “new” property expenditures.  However, they can still claim some measures of tax relief.

Going forward, profits from a holiday let will be considered part of the individual’s UK or overseas property business, and treated like other property income and gains. Consequently, higher or additional-rate taxpayers may face a higher capital gains tax on profits from the sale of a holiday let.

In summary some of the transitional rules put forward are,

Unused capital allowances pools or losses that remain when the FHL regime concludes can still be utilised. Advantageous for holiday let owners who have ongoing claims. Previously, there were concerns that unclaimed tax relief would be forfeited with the end of the FHL regime. Now, FHL owners not only retain access to the remaining tax relief but also have the option to offset it against rental income from residential or commercial properties.

The new legislation and transitional rules will also apply to FHL’s owned in a limited company. This change aims to provide clarity and consistency for businesses operating within the property rental sector. By ensuring that all FHL’s, regardless of ownership structure, adhere to the same regulatory framework, the government hopes to simplify compliance and reduce administrative burdens.

Conclusion

The Government and Local authorities are striving to balance the needs of long-term residents with the influx of tourists and part-time residents. The hope is that these adjustments will lead to more sustainable.  So vibrant communities where everyone can thrive. It remains to be seen how these policies will shape the housing market. In the long run, but one thing is certain: the landscape is evolving, and adaptability will be key for all involved.

Those considering incurring qualifying capital expenditure on holiday homes should act promptly! Take advantage of capital allowances, before they are no longer available from April next year. It is essential to ensure that their properties are as cost-effective as they can be.

Owners of holiday lets worried about the tax effects of the upcoming regulations can schedule a complimentary tax consultation with one of our experienced advisors. Our team is well-versed in the intricacies of tax law.  We can provide you with personalised guidance to help navigate these changes.

Book your free consultation today and take the first step towards a more secure and profitable future for your holiday let business.

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Cavetta Consulting provides a complimentary capital allowances review for owners of furnished holiday lets. Reach out to us today to begin yours!