In the Spring Budget of March 2024, the then Chancellor, Jeremy Hunt, announced the proposed abolition of the Furnished Holiday Lettings (FHL) tax regime, effective from April 2025. The specific details of how the transitional rules are to be implemented and the corresponding draft legislation were to be released in due course.
However, in the interim, the lack of clarity on the transitional rules left many professionals in a state of limbo, essentially unable to fully advise property owners on the implications for their FHL business, especially concerning capital allowances.
Given the number of uncertainties surrounding the announcement, we found ourselves in the frustrating position of being unable to advise or recommend that any of our clients undertake a capital allowances assessment on their properties as we simply did not know the short-term or long-term benefits or implications in doing so.
The situation was further complicated by the result of the General Election in July and the subsequent change in government, which added more uncertainty and potential delays to the release of the draft legislation – if it were to be published at all.
Fortunately, the draft legislation and explanatory notes were published on 29th July, bringing overwhelmingly positive news from a capital allowances perspective.
From 1st April 2025 for Corporation Tax (6th April 2025 for Income Tax) capital allowances on FHLs will no longer be available on new expenditure. Instead, they will be eligible for ‘replacement of domestic items relief,’ aligning FHL properties with other property businesses.
Former FHL properties will be incorporated into a person’s UK or overseas property business as appropriate, with profits and losses amalgamated across all properties in that business. Previously, FHL losses could only be offset against future FHL profits, so the ability to absorb these losses into the broader property business from April 2025, where applicable, is a welcome change.
Additionally, the treatment of existing capital allowances pools for FHL businesses has been clarified: owners can continue to claim writing-down allowances on these pools post-April 2025. This addresses a significant concern and provides reassurance that the long-term tax benefits will not abruptly end with the repeal of the regime.
It is also important to note the changes to capital gains tax reliefs. Where FHL properties previously qualified for reliefs such as Entrepreneurs’ Relief and Business Asset Rollover Relief, they will now be subject to the same capital gains tax rules as other residential properties.
While the draft legislation has answered many of the key questions, some specific scenarios remain open to interpretation. We are in direct communication with a designated contact at HMRC to seek further clarification and ensure our advice aligns with the intentions of the new legislation.
Our additional queries focus on post-April 2025 events, such as the sale of a former FHL, the interaction between losses and capital gains, occupancy and letting conditions, and qualifying criteria for new lettings, accounting periods that straddle April 2025, and amendment deadlines.
We will provide further updates as additional information becomes available.
With clarity on the repeal of the beneficial tax treatment for FHL properties, it is now possible to act to preserve these tax savings before they are lost. Therefore, it is imperative for anyone connected with an FHL property – whether as an owner, agent, accountant, solicitor, or property manager – to get in touch today to ensure all available capital allowances are pooled before the April 2025 deadline.
If you are interested in exploring this opportunity further or have any questions, please contact the experts here at Bonham & Brook. Our specialist consultants, with over 20 years of combined experience in capital allowances, are ready to assist you in maximising your tax savings. Call us on 020 3523 9125.