HMRC have published draft legislation detailing how the abolition of the Furnished Holiday Letting (FHL) rules in April 2025 will operate. What does this mean?
Subscribers, see Here for your detailed guide with essential planning points.
Background
It was announced at the 2024 Spring Budget that the Furnished Holiday Letting (FHL) regime would be abolished from:
- 6 April 2025 for Income Tax and Capital Gains Tax (CGT) purposes.
- 1 April 2025 for Corporation Tax purposes.
Draft legislation to effect the abolition of the FHL rules was published in July 2024. This gives much greater detail on the expected changes and the transitional provisions that will apply.
From April 2025, properties that previously qualified for FHL status will now form part of the taxpayer’s UK or overseas property business as relevant. Such properties will then be subject to the same rules as non-FHL property businesses.
Relief for loan interest
The Finance cost relief restriction will apply to former FHL businesses from 6 April 2025.
Loan interest relief for individuals will be restricted to the basic rate of Income Tax.
Pensions
Income from former FHL businesses will no longer be included in Relevant UK earnings for the purposes of making pension contributions from 6 April 2025.
Jointly held property rules
Former FHL properties will no longer be excluded from the Jointly held property rules from 6 April 2025.
This means that where a property is held in the joint names of husband and wife or civil partners, from 6 April 2025, the couple will be taxed 50:50 on the income unless they hold unequal beneficial interests and make an election under section 837 ITA 2007.
Losses
On 6 April 2025, former FHL properties will become part of a taxpayer's UK or overseas property business, as appropriate. Where losses are carried forward from a former FHL business as of 5 April 2025, those losses will be available for offset against future years’ profits.
- UK FHL business losses may be carried forward and relieved against future UK property business profits.
- EEA FHL business losses may be carried forward and relieved against future overseas property business profits.
Capital allowances
The extended availability of capital allowances to FHL businesses will cease for expenditure incurred on or after 6 April 2025.
As with existing non-FHL businesses, Replacement of domestic items relief will apply to expenditure incurred from 6 April 2025.
It is not necessary to bring a Disposal value into account when the FHL regime is abolished.
Where a former FHL business has an ongoing capital allowances pool, it can continue to claim Writing Down Allowances (WDAs) on that pool after 6 April 2025.
Capital Gains Tax (CGT) reliefs
For disposals on or after 6 April 2025, former FHL businesses will no longer be treated as a trade for CGT purposes.
This means that the following CGT reliefs will generally cease to be available for disposals after 5 April 2025:
- Business Asset Disposal Relief (BADR).
- Business Asset Rollover Relief.
- Gift Relief.
- Relief for loans to traders.
BADR will remain available for FHL disposals after 6 April 2025 in certain scenarios. See Abolition of the FHL regime: Briefing
A CGT anti-forestalling rule applies from 6 March 2024. This rule seeks to tackle arrangements that aim to lock in the application of the FHL rules where an asset is disposed of under an unconditional contract entered into on or after 6 March 2024.
For the detailed conditions see Abolition of the FHL regime: Briefing
Companies
The above rules apply to companies (as far as they are applicable) for accounting periods beginning on or after 1 April 2025.
- Where an accounting period straddles 1 April 2025, it is apportioned into two separate accounting periods on a time basis.
- If a time apportionment would produce an unreasonable result, another just and reasonable method can be used.
As former FHL businesses will no longer be treated as a trade from 1 April 2025 for capital gains purposes, the availability of the Substantial Shareholding Exemption (SSE) will cease.
Useful guides on this topic
Abolition of the FHL regime: Briefing
HMRC have published draft legislation and related notes detailing how the abolition of the Furnished Holiday Letting (FHL) rules in April 2025 will operate. We consider the practical impact of the loss of the FHL rules and provide some essential planning points.
Furnished Holiday Letting
What is Furnished Holiday Letting? How do you qualify for Furnished Holiday Letting? What are the rules for Furnished Holiday Letting?
Joint property elections
When a property is held in joint names it is mainly taxed according to beneficial ownership. There is an exception where married couples and civil partnerships hold joint property. Trusts are also taxed differently.
Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of a business
Entrepreneurs' Relief (ER) was renamed Business Asset Disposal Relief (BADR) by Finance Act 2020. When does BADR apply? What is the rate of BADR? How do you claim BADR? What BADR case law is there?
CGT: Holdover/Gift Relief (s.165/s.260)
Holdover relief is available when an individual makes a gift to another person (individual or company). When is the relief available? What are the conditions that apply? What restrictions are there?
External links
HMRC policy paper, draft legislation and explanatory note: Furnished holiday lettings tax regime abolition
