The of end FHL tax breaks
The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. Draft legislation is to be published and will include anti-forestalling measures that will apply from 6 March 2024. The effect of abolishing the rules will be that short-term furnished holiday lets and longer-term residential lets are treated the same for tax purposes and individuals will no longer need to report the two income streams separately.
The advantages likely to be affected are:
• Interest incurred on borrowings is fully deductible against taxable profits
• Beneficial capital allowances rules allowing tax relief for fixtures
• Various capital gains tax reliefs, including potential for business asset disposal relief (10% rate on sale), rollover relief and gifts hold-over relief
• Profits from FHLs can be treated as relevant earnings for pension purposes
• Income from a FHL held jointly by a married couple or civil partners is not caught by the default 50:50 split for income tax purposes
Brightline Test
The OTS report outlines a suggested ‘brightline’ test to provide a clear test for when property letting activities subject to income tax would qualify as a trade. It proposes possible factors to be considered within the test are:
- minimum number of properties let
- letting is on a short term basis
- no personal use of the let
- level of personal time devoted to the property letting and services provided
Good news on CGT
Residential higher rates will be reduced on chargeable gains on residential properties, with the exception of any element that qualifies for Private Residence Relief. These rates are changed from 18% and 28% in 2023/24 to 18% and 24% in 2024/25
But its still bad news for Holiday lets as they will lose Business Asset Disposal Relief meaning CGT at 10%
Changes to SDLT
A number of changes are made to the Stamp Duty Land Tax (SDLT) regime. These include the following:
• The abolition of Multiple Dwellings Relief
• Changes to First-Time Buyer Relief to extend it to individuals buying a new residential lease via a nominee or bare trust for transactions
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