Spring Budget 2024 Furnished Holiday Let Regime Abolished
Published / Last Updated on 06/03/2024
The Chancellor announced in the Spring Budget today that from 6 April 2025, the Furnished Holiday Let (FHL) Regime will be abolished meaning FHLs and short term let properties will be taxed in the same way as residential buy to let (BTL). This means that the tax write-down of capital allowances will no longer be offset as expenses to reduce income taxes as well as losing potential capital gains tax and inheritance tax benefits that may, in certain circumstances currently be available.
FHLs currently must be available to rent for 210 days per year and must actually be rented out to a holiday maker for at least 105 days per year.
Watch Current Rules for FHLs: Holiday Let v Buy to Let
Short term and long term let will now be treated the same.
Stamp duty payable on purchases remains the same i.e., unchanged for both BTL and FHL, both pay same levels of stamp duty.
Capital allowances that can currently be claimed on FHLs e.g. the ‘write down’ allowance against income tax for depreciation of all furniture, fixtures and fittings will be abolished, meaning more income tax is payable.
They will also stop for certain refurbishment costs like plumbing and wiring and in many cases, they could even been claimed on part of the original purchase price of your holiday property (e.g., a Static Caravan/Park Home that you rent out then depreciates in value just like a car or van).
Capital Gains Tax (CGT) – For buy to let property, CGT is 18% if the gain, when added to your income is still within the basic rate tax band and 28%* of the gain when added to your income is in the higher rate tax band.
For FHL and short term lets (provided the property is run as a true business rather than just a short term residential let), HMRC currently allows Business Asset Disposal Relief for CGT at a reduced tax rate of 10% (up to a lifetime allowance on total business gains of £1m), provided you have owned the ‘business’ asset holiday let for 2 years or more. This will now cease on 6 April 2025 and all FHLs and short term lets will be taxed at normal CGT rates for property.
It is rare for HMRC to agree that a normal holiday let is a true trading business asset as most of the services provided are usually for renting a property out (i.e., it is real estate investing rather than a trade), and you would need to supply a much wider range of services.
*CGT highest rate of 28% going to 24% from 6 April 2024 will also mean more transactions, with more landlords switching to long term lets and also more selling up releasing more property onto the hard-pressed property market.
The above change for FHLs also raises some further questions from us that we wait for confirmation on:
- Inheritance Tax (IHT – If your FHL property, had already been proven to be a real, trading business and benefitted from Business Asset Disposal Relief, then as a true business (very difficult) it would also attract Business Property Relief (BPR) on IHT i.e., a 0% IHT rate. With the abolition of FHLs and all treated as normal BTL, we assume this will mean any FHL that did qualify for BPR, will now fail and be potentially subject to IHT at 40%.
- Council Taxes v Business Rates? Current FHLs and short term lets are registered with the local authority for business rates rather than council tax. Many holiday lets registered for small business rate relief meaning no business rates are payable (not rates and no council tax – another bonus). With the abolition of FHL, does this mean that FHLs will now have to pay council tax?
