The Furnished Holiday Lettings Regime – update from the Spring Budget 2024

The Furnished Holiday Lettings Regime – update from the Spring Budget 2024

By Published On: 14 March 2024Categories: buy to let

The Spring Budget 2024 was rather uneventful for many, unless you’re landlord with holiday properties in your portfolio that is. With the Furnished Holiday Lettings regime being abolished from April 2025, the market has been shaken up, so what exactly does this mean?

The FHL tax regime, which previously allowed landlords to claim full mortgage interest relief and benefit from lower capital gains tax, had made short-term holiday property letting an attractive investment option. However, the Chancellor expressed concern that the FHL system created a distortion in the housing market, reducing the number of properties available for long-term rental by local people.

Current Benefits of the FHL Regime

The FHL regime offered several key benefits:

  • Full deduction of finance costs (i.e., mortgage interest) from FHL income.
  • Business asset disposal relief on disposal of some FHL, resulting in a 10% capital gains tax rate.
  • Profits from FHLs counted as relevant earnings for pension purposes.
  • Capital allowances could be claimed on items such as furniture and fixtures against the rental income.
  • Expenditure on furniture was generally deductible as an expense of the property business.

Impact for FHL Landlords

The abolition of the FHL tax regime is intended to level the playing field between short-term and long-term lets, supporting people to live in their local area. This move is expected to raise £245 million a year, which will help fund tax cuts such as the latest reduction in National Insurance.

The withdrawal of full relief for borrowing costs, along with the expiry of the 10% Capital Gains Tax rate, is likely to drive many individual landlords out of the sector over the next year. Others may explore an incorporation of their portfolio, albeit this can be a complex and often costly process.

While this change may pose challenges for those who have invested in FHLs, it also presents an opportunity to reassess investment strategies and explore new avenues. As we delve deeper into the implications of this change, we remain committed to providing our clients with the insights and guidance they need to navigate this new landscape.

How Vantage Accounting can help

Tax and legislation can be confusing at the best of times, let alone when it gets changed and you have to understand it all again from scratch! Why not let the expert team of accountants here at Vantage Accounting help you navigate the world of tax, by explaining the changes and helping you understand the best possible outcome for you and your business? Get in touch with the team today to find out more about our services and how we can help.

Note: All the information and advice in this blog post was correct at the time of writing.

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