Proposed Changes to Furnished Holiday Lets (FHL) Tax Regime

There are some proposed changes to the Furnished Holiday Let (FHL) tax regime, which are set to come into effect from April 2025 which may be of interest to property owners. If you would like to know more about these changes, please continue to read below:

Key Changes:

• Removal of Capital Allowances: From April 2025, capital allowances will no longer be available for new expenditures. You will only be able to claim for replacing capital items, such as fixtures, furnishings, and equipment.
• Mortgage Interest Deduction: The rules around mortgage interest deduction will change, limiting the tax relief available on this expense for higher and additional rate taxpayers.
• Classification of Income: Income from FHLs will be treated as property income rather than trading income, which may affect how profits are taxed and how losses can be carried forward.
• Pension Contributions: As FHL income will no longer count as relevant UK earnings, it will no longer be eligible for tax relief on pension contributions. Owners may want to consider making maximum pension contributions now.

Who Will Be Affected? These changes will impact all FHL owners, including those who operate as individuals, partnerships, or companies. The shift in how income is classified will require owners to reassess their tax strategies, especially those who benefit from capital allowances or use their FHL profits to contribute to pension schemes.

What Should You Do? We recommend reviewing your current financial plans and considering whether any adjustments are needed ahead of the April 2025 deadline. If you are in the process of making significant property improvements, it may be wise to complete these before the new rules come into force.

For a more detailed explanation of these changes please consult relevant government advice.