Changes for Furnished Holiday Lets – Spring Budget 2024

Since the introduction of the restriction to basic rate tax relief on interest costs associated with residential buy-to-let properties, many landlords have looked to take advantage of the favourable tax rules available on Furnished Holiday Lets (FHL). 

Those tax advantages include: 

• Full deduction for loan interest against profits (and the associated costs of obtaining loans). 
• The net profit being treated as ‘Net Relevant Earnings’ for pension purposes. 
• The ability to claim Capital Allowances on fixtures and fittings, furniture and integral features within the property. 
• The availability of Capital Gains Tax reliefs, namely Business Asset Disposal Relief (10% rate of tax), Rollover Relief when investing in qualifying replacement property and Business Asset Gift Relief on transfers to other individuals. 

The Spring Budget announced that the FHL rules will be abolished with effect from 6 April 2025. 

The news that the special rules for FHLs are being withdrawn will come as a blow to many FHL landlords and holiday letting companies alike. From 6 April 2025 (1 April for companies), all holiday lets will fall under the same rules as longer-term residential lets exceeding 30 days. 

Whilst more detail is yet to be published, the change will affect those who have claimed Capital Allowances, potentially resulting in a balancing allowance or charge impacting the profits or losses for the final period the property is treated as an FHL. 

Any unused losses as of 5 April 2025 are likely to be converted into regular property business losses. 

One significant impact will be the restriction of interest relief to 20% on qualifying costs.  Whilst this will not affect basic rate taxpayers, for an additional rate taxpayer paying £10,000 in loan interest, the tax relief will reduce from £4,500 to £2,000, a difference of £2,500. This is in addition to any additional charge relating to capital allowances mentioned above.  

It would, therefore, be advisable to review the impact of these changes on your tax liability for the years ended 5 April 2025 (the impact of a Capital Allowances balancing allowance/charge) and 2026 (the change in tax relief for interest costs), so that you understand the impact on the tax payments that will be due by 31 January 2026 and 2027.   

We do not expect clients to be able to bring FHL sales or purchases within the Rollover Relief regime moving forwards. For those who have previously rolled over any gains relating to the disposal of FHL’s, it remains to be seen as to whether HMRC will effectively allow the deferred gain to remain in place or if rules allowing the spreading of any tax will be introduced. 

HMRC have indicated that anti-forestalling will apply, to prevent taxpayers bringing forward tax events to benefit from the current tax regime.  This might include measures to prevent the triggering of gains to benefit from Business Asset Disposal Relief.   

If these changes will affect you, it is important that you discuss any concerns with your usual Kreston Reeves adviser. 

Watch our Spring Budget question time webinar

Following the Spring Budget, our panel of specialists examined the announcements made by The Chancellor, discussing what these changes mean for you. They also answered questions from our live audience. This webinar is now available to watch on demand here.

Alternatively, if you would like any further information or guidance on this topic, get in touch with your usual Kreston Reeves contact or contact us here.