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Jeremy Hunt unveiled quite a strong policy in the 2024 Spring Budget to abolish the furnished holiday lettings (FHL) tax regime, with declarations that the changes would become effective as soon as 2025. Since then, further detailed guidance has not been forthcoming and any opportunities to pass this as law in the Finance Bill prior to the election were missed. Now Parliament has been dissolved, will anything actually materialise for FHL landlords and investors in the future?
There is a lot to take into consideration if the furnished holiday letting rules are to be overhauled. In some areas, although FHL landlords may be unpopular, the holiday accommodation they provide has become a key part of the local economy, supporting many other business owners in the community. On the other hand, having lots of holiday properties and second homeowners pushes up housing costs and reduces the available residential housing stock for local people. Added to this, many farm owners have started offering holiday accommodation, which is becoming an important source of additional revenues against a challenging backdrop of changing weather conditions and Brexit related issues.
This article explains what was originally announced by the Conservative government and what could potentially happen in the coming months and years. Both the parties are staying quiet about their ultimate manifesto plans for furnished holiday let landlords.
Initially, the government said it would “abolish the Furnished Holiday Lettings tax regime, eliminating the tax advantage for landlords who let out short-term furnished holiday properties over those who let out residential properties to longer-term tenants.”
To prevent property investors from by-passing these plans, it also said that “draft legislation will be published in due course and will include an anti-forestalling rule”. The anti-forestalling rule means that a property investor would not be able to “gain a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules.” This rule was to be effective from 6 March 2024.
Although the intention to introduce an anti-forestalling rule effectively buys the Conservative government a lot of extra time, none of these measures were included in the Finance Bill. Now, a few months after the Budget, no further details have been announced.
If the FHL rules are finally abolished, what will this mean for holiday homeowners? It is worth highlighting this because although Labour has not specifically shared its plans for property investors, it is quite possible that the Conservative policy will be adopted by them if they gain power after the general election.
Business asset disposal relief (BADR) is to be withdrawn for the disposal of qualifying FHL properties from 6 April 2025. This means that gains on a disposal will be taxed at standard capital gains tax rates for residential property; currently 28% for higher rate taxpayers, but reducing to 24% from 6 April 2024;
Business asset rollover relief allowing gains to be reinvested in another qualifying asset (which could also have been another FHL property or trading premises) will be removed from 6 April 2025;
Gift hold-over relief, allowing a gain made on gifting an FHL property to be held over will also no longer be available from 6 April 2025;
Capital allowances for fixtures (e.g. fitted kitchens, sanitaryware, heating, plumbing, electrical and lighting) and furniture within a FHL property will be withdrawn from 6 April 2025.
Initially when the policy changes were announced, there was mention of a ‘brightline’ test as recommended by the OTS report. This would differentiate between those who are providing holiday accommodation as a primary business interest and who should continue to benefit from some tax breaks and those who operate a holiday home as an additional asset and are benefitting from the original FHL rules. Nothing has been shared about what the qualifying criteria will be, but it is likely the brightline test will be based on having a minimum number of properties or the taxpayer spending a minimum proportion of working time on managing these properties.
All we can do now is wait to see what will happen in the election and monitor the situation.
If you have property investments and need tax planning advice please contact us via partners@rjp.co.uk.
To learn more about the tax policies being pledged by the main political parties read our article
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