In the Spring Budget 2024, the Chancellor announced a significant change that will directly impact companies owning furnished holiday lets/Serviced Accommodation (SA): the Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025.
This change marks the end of a beneficial tax regime that has been in place for decades, and it carries important implications for tax planning, particularly for companies that have structured their property investments to take advantage of FHL rules.
📌 What Is Changing?
From 6 April 2025, the FHL regime will no longer apply. This means:
- No more capital allowances on items like furniture and fittings.
- No Business Asset Disposal Relief (BADR) on the sale of FHL properties (previously allowing 10% CGT rate).
- No rollover relief when reinvesting proceeds into other trading assets.
- Section 24 applies to individuals and partnerships
👨💼 Why Does It Matter for Companies?
While the FHL regime was originally designed with individuals in mind, many companies have also benefited from the enhanced deductions and CGT treatment. With its removal, companies will now be taxed in the same way as other property businesses.
This will particularly affect:
- Profit extraction strategies – if profits reduce, dividends and director remuneration may need to be reassessed.
- Incorporation plans – some landlords may reconsider moving personally owned FHLs into companies now that the tax advantages are disappearing.
🔍 What Should Companies Do Now?
- Review planned disposals: If you’re an individual planning to sell a holiday let, the three-year rule allows disposals of holiday let properties up to April 2028 to qualify for BADR, provided the FHL business ceased before 6 April 2025, and all other conditions for BADR are satisfied. This includes ensuring that the disposal is made in good faith without a primary purpose of obtaining tax advantages. Clear evidence and statements may be required to support the claim for relief. BADR can apply to the sale of shares if the above conditions are satisfied. For example:
- The individual must hold at least 5% of the shares in a trading company or group.
- The shares must have been held for at least two years, and the individual must have been an employee or officer during this time.
- The total gains eligible for BADR must not exceed the lifetime limit of £1 million for disposals made after 11 March 2020.
- Capital allowances: From 6 April 2025, existing capital allowances related to furnished holiday lettings can generally be carried forward under transitional rules. These allowances will be transferred to the appropriate pool for the corresponding property activity (UK or overseas property business). Elections and short-life asset treatments made before this date will remain valid, without a deemed disposal event as of 5 April 2025. However, capital allowances will not apply to new expenditure on former FHL properties after the regime’s abolition. Owners should carefully review their existing allowances and consider the transitional rules to maximise available relief.
- Profit forecasts: Update business plans and tax projections to reflect reduced tax efficiency from 2025.
📝 Final Thoughts
This change underscores the government’s broader aim to simplify property tax treatment and reduce the favourable treatment of short-term letting. For corporate landlords operating holiday lets, this is a key moment to reassess tax strategy and ownership structure.
We are here to help, please book a meeting if you want to discuss the changes
