Operators to get their house in order before furnished holiday lettings tax regime abolished

Wbg, one of Scotland’s leading independent specialist full-service accountancy firms, is advising operators to get their house in order before the forthcoming abolition of the furnished holiday lettings (FHL) tax regime.

The abolition removes the specific tax treatment and separate reporting requirements for FHLs, so that income and gains from an FHL will then form part of an individual’s UK or overseas property business and be treated in line with all other property income and gains.

The current rules provide beneficial tax treatment for furnished holiday lettings compared to other property businesses with regard to exemption from finance cost restriction rules; more beneficial capital expenditure rules; access to reliefs from taxes on chargeable gains, and inclusion as relevant UK earnings when calculating maximum pension relief.

The measure will have effect on or after 6 April 2025 for Income Tax and Capital Gains Tax and from 1 April 2025 for Corporation Tax.

Gavin Brown, senior tax manager at Wbg, said: “One major change is the loss of Business Asset Disposal Relief whereby, currently, if you sell a FHL the gain can be subject to tax at 10%, as opposed to the standard rates of 18% and 24% that usually apply to residential properties.”

“So, if you sell an FHL after 5 April 2025, you will be subject to these higher tax rates. Additionally, operators who have mortgages over their property will no longer be able to deduct their mortgage interest as an expense. This could have a very detrimental impact on annual income tax liabilities.”

Gavin advises any FHL operators to seek professional advice sooner rather than later, especially if they have been thinking about selling the property.

“You don’t need to let the tax tail wag the dog, but if you’re concerned about the tax, are considering selling a furnished let property or ceasing your business, then you should seek advice as soon as possible.”