Following the 2024 Spring Budget, Chancellor Jeremy Hunt has announced a raft of changes coming into effect from April 2025 for Furnished Holiday Lets. We’ll take a look below at the changes and how they’ll affect current FHL owners, or those looking to purchase a holiday buy-to-let property.
1. Capital Allowances:
One of the primary tax benefits of owning a furnished holiday let is the ability to claim capital allowances on furniture, fixtures, and fittings. Unlike traditional buy-to-let properties, where these items are considered part of the property’s capital value, FHL owners can depreciate these assets over time, reducing their taxable profits and ultimately their tax bill.
The 2024 budget saw the announcement that this will be abolished from April 2025, ultimately increasing operational profits on a yearly basis for FHL owners. Capital expenditure however will be factored into the sale of property when calculating profits liable for Capital Gains Tax, which we’ll look at later.
2. Mortgage Interest Relief:
While recent changes in tax legislation have phased out mortgage interest relief for traditional buy-to-let properties, FHL owners still enjoy full relief on mortgage interest payments. This can translate to significant savings, especially for those with substantial mortgage liabilities.
The budget changes will mean however FHL will be bought in line with long term buy-to-let properties, where tax relief on mortgage interest payments will only be available at the basic rate of tax.
3. Entrepreneur’s Relief:
For investors looking to exit their FHL investment, under the current tax regimes are currently able to benefit from Entrepreneurs’ Relief. Qualifying individuals can benefit from a reduced Capital Gains Tax (CGT) rate of 10% on the sale of their FHL, provided certain conditions are met.
From April 2025 all sales will be taxed at the residential property Capital Gains Tax rates, which is 18% at the basic rate of tax and 24% at the high-rate tax (currently 28% but has been reduced to 24% as part of the 2024 Budget).
The increase rate at which sales will be taxed, coupled with the fact the Capital Gains Tax annual exempt amount will be reduced even further to just £3,000 from April 2024 may accelerate some investors decisions to sell up before April 2025.
4. Pension Contributions:
Investing in FHLs can also complement retirement planning strategies. Income generated from FHLs can be used to fund pension contributions, providing investors with a tax-efficient means of building their retirement nest egg. Furthermore, rental income from FHLs is considered relevant UK earnings, making individuals eligible for tax relief on pension contributions up to certain limits.
However, as part of the Budget, it was announced that FHL profits would now not count towards an individuals net relevant earnings, potentially reducing the ceiling of pension contributions tax reliefs depending on other forms of income.
5. Multiple Dwellings Relief
Multiple Dwellings Relief currently allows purchasers of multiple residential properties to pay Stamp Duty Land Tax based on the average price per dwelling. As STLD rises as more properties are purchased, this can mean there are significant savings to be made. This has been abolished in the 2024 Budget from April 2025, and will hit large portfolio landlords the hardest.
In conclusion, the 2024 Budget has shook up the FHL regime with several big changes. If you own any FHL properties or are thinking of investing in one and are unsure of how any of the changes announced will affect you, please get in touch with Johnston Wood Roach Accountants today.
