The UK government is making significant changes to the tax benefits associated with Furnished Holiday Lets (FHLs), which will impact short-term rental owners across the country. If you rent out a holiday home, it’s crucial to understand these changes and how they could affect your rental income and financial planning.
What is a Furnished Holiday Let (FHL)?
A Furnished Holiday Let is a property that meets specific criteria set by HMRC, distinguishing it from standard buy-to-let properties. To qualify as an FHL, your property must:
Be furnished and available for commercial holiday letting.
Be available to rent for at least 210 days per year.
Be let to the public for at least 105 days per year (excluding stays of more than 31 days by the same guest).
For years, FHL status has provided owners with tax advantages, including capital allowances, reduced capital gains tax, and the ability to pay business rates instead of council tax. However, the upcoming government changes could remove these benefits.
What are the proposed Tax Changes?
The UK government has announced its intention to abolish the FHL tax regime from April 2025, meaning short-term rental owners will lose access to key tax reliefs. While the full details and timeline are yet to be confirmed, this move could have a significant financial impact on holiday let owners.
Here’s what may change:
1. Loss of Capital Allowances
Currently, FHL owners can claim capital allowances on furniture, appliances, and renovations. This may no longer be possible.
2. Higher Capital Gains Tax
At present, FHL owners benefit from Business Asset Disposal Relief, reducing the capital gains tax rate to 10% when selling. If FHL status is removed, standard capital gains tax rates (up to 28%) may apply.
3. National Insurance Contributions
FHL income is currently classed as business income, meaning owners do not pay Class 2 or Class 4 National Insurance. This could change if FHLs are taxed as standard rental income.
4. Mortgage Interest Tax Relief
Unlike standard buy-to-let properties, FHLs allow mortgage interest to be deducted from profits before tax. This benefit may be removed, increasing tax liabilities for mortgage holders.
How will this affect Holiday Let Owners?
The proposed tax changes could lead to:
1. Higher tax bills
Owners may pay more income tax and capital gains tax.
2. Reduced profitability
Without tax reliefs, running a short-term rental may become less financially attractive.
3. Changes in ownership strategies
Some owners may choose to sell properties, switch to long-term rentals, or restructure their businesses.
What can you do?
Although the final details are yet to be confirmed, here are some proactive steps owners can take:
1. Stay informed
Keep an eye on government announcements and industry updates. Huluki Sussex Stays will provide updates as more details emerge.
2. Seek professional advice
Speak to an accountant or tax specialist to understand how the changes will affect your specific situation.
3. review your business model
Consider whether adjustments to pricing, management, or financing could help offset the impact of higher taxes.
4. Plan ahead
If you’re thinking of selling or restructuring your holiday let, factor in potential tax changes before making a decision.
At Huluki Sussex Stays, we are committed to supporting our property owners through these changes. Our expert team can help you navigate new regulations, optimise pricing strategies, and ensure your holiday rental remains competitive.
If you have questions or concerns about how the FHL tax changes might impact you, please reach out to us—we’re here to help.
Source: GOV.UK
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