It was announced in the March 2024 budget that the special treatment of Holiday Lets (FHL) would be abolished from the 6th April 2025. That’s in 10 months time!!
In 2017 there were around 8,000 FHLs by 2022 there were 111,000 in the UK, the growth has been incredible, which is why the Government have changed the rules to cash in and also to release properties for the long term let market.
Key Problems
Capital Allowances
One of the major benefits of holiday lets/serviced accommodation has been and is Capital Allowances. These have been claimed by both individuals and companies.
Many FHL owners have claimed between 20% and 40% of the property value saving considerable tax, its been the top advantage of holiday lets for most owners and its key reason behind personal ownership which allowed the profits offset by Capital Allowances to be extracted tax free.
Now the regime is ending (5th April 2025) the market value of the assets (Integral Features and Plant & Equipment) may need to be assessed and a balancing charge may be payable. This could effectively refund HMRC with the tax that had been reclaimed.
Interest Restriction
This won’t apply to companies.
Companies will have a clear tax advantage for FHL ownership in the future.
Individual FHL owners will be taxed in the same way as BTL owners, this means Interest will no longer be an allowable cost and instead they will get the finance allowance. This is fine if you are 20% tax payer but will mean additional tax for 40% tax payers.
CGT Reliefs
If you sell or transfer your FHL now you can still benefit from generous Capital Gains Tax Allowances (SDLT LBTT LTT may be payable)
Business Asset Disposal Relief (BADR)
This was previously known as Entrepreneurs Relief, basically, subject to rules, if you dispose of your FHL business, the gain is taxed at 10%.
Its anticipated that the date of disposal will be critical. In other words, an individual who ceased their FHL business will only qualify for BADR if they dispose of their FHL by the earlier of three years from the date of cessation or 5th April 2025.
We don’t expect the end of the regime on the 5th April 2025 to count as cessation for BADR, meaning you can then dispose of the property then claim BADR in the following three years.
So there is clear incentive to sell now before the change takes place.
HS275 Business Asset Disposal Relief (2024) – GOV.UK (www.gov.uk)
Rollover Relief
This allows the FHL owner to rollover over their gain into a new business property.
It is clear that this relief will not be available after 5th April 2025, however, if a sale took place before the deadline could the gain be rolled over into a new qualifying business property for example a shop?
Let’s hope so, otherwise there will be no option but to pay the CGT rolled over.
HS290 Business Asset Roll-over Relief (2024) – GOV.UK (www.gov.uk)
Holdover Relief
Where the intention is to keep an FHL property within the family, there are a number of tax planning opportunities. FHL properties that meet the qualifying criteria are able to benefit from s. 165 business asset holdover relief, and they may also qualify for business property relief, so enabling a gift into trust without a lifetime inheritance tax charge. In the latter case, holdover relief under TCGA 1992, s. 260 would apply as it takes priority over s. 165.
Holdover relief for FHL’s will end on 5th April 2025
Gift Hold-Over Relief – GOV.UK (www.gov.uk)
Incorporation Relief
Its likely that an FHL business will qualify for incorporation tax relief, this should continue after the 5th April 2025. The important factor is the level of activity as outlined in the Ramsey Case.
HS276 Incorporation Relief (2024) Roll-over relief on transfer of a business – GOV.UK (www.gov.uk)
Anti Forestalling
The Government announced at Spring Budget 2024 that the Furnished holiday lettings tax regime (FHL) will be abolished from April 2025. The Finance (No. 2) Bill 2024 will include an anti-forestalling rule to prevent access to capital gains tax reliefs through the use of unconditional contracts, to apply from 6 March 2024. This is yet to be enacted and may be subject to change.
The date of disposal is the date of an unconditional contract which in England and Wales is normally the date of exchange.
So CGT reliefs would be based on that date not the completion date.
What this means is that any contract has to complete by the 5th April 2025
The abolition of FHL Tax Breaks is supported by both Labour and Conservatives, in fact Labour wanted to make the change back in 2010, so its unlikely who ever wins the election will stop the changes taking place.
Contact Us
Now is time to consider your option, we can help, please get in touch, book a meeting or drop me an e mail steve@bicknells.net
