Changes to the tax rules for Furnished Holiday Lettings | 6 Key Tax Planning Opportunities

HMRC has recently published clarification following the abolition of the Furnished Holiday Lettings (FHL) tax regime with effect from 1st April 2025 for corporate bodies liable to Corporation Tax, and from 6th April 2025 for individuals liable to Income Tax and Capital Gains Tax.  

After these dates, Furnished Holiday Lettings (FHL) businesses will be treated like any other lettings business and the repeal removes special tax advantages that FHL’s have over other property rentals. 

In this article, Tax Manager, Patrick O’Brien, reviews the changes and summarises the 6 key tax planning opportunities for those who run Furnished Holiday Lettings (FHL) business before the changes take place in April.

1. Pension Contributions 

An individual may contribute tax-relieved Pension Contributions to their own pension scheme up to the level of your Relevant earnings in the tax year. For those individuals running a Furnished Holiday Lettings (FHL) business, their profits are currently treated as Relevant Earnings. We recommend taking time to review your pension contributions with your Independent Financial Adviser before 6th April 2025. 

2. Married couples/Civil Partnerships 

If you are married or in a civil partnership and share FHL profits other than 50/50 it may be worth reviewing how your profit is split before 6th April 2025. We can assist you to put the proper structure in place by before the deadline. Those who are unmarried and not in a civil partnership are unaffected by this change and will continue to be taxed on their ownership share in the property. 

3. Losses arising from running a Furnished Holiday Lettings (FHL) business 

If you are carrying forward FHL-generated losses and have not managed to use them yet, the good news is that these can be carried forward and used to reduce any future profits arising from your other lettings business. 

4. Capital allowances 

If your Furnished Holiday Lettings (FHL) business has a capital allowances pool you can continue to claim writing down allowances. You might want to consider accelerating your capital allowances spend before April 2025. 

5. Capital Gains Tax – Business Asset Disposal Relief 

If you decide to cease your Furnished Holiday Lettings (FHL) business before 6th April 2025, and you meet certain criteria in the two-year period prior to cessation, you may qualify for Business Asset Disposal relief on any capital gains up to £1m at a CGT rate of 10%. From 6th April 2025, the BADR rates will increase from 10% to 14% and will rise again to 18% from 6th April 2026. 

6. Capital Gains Tax – Gift Holdover Relief 

If you decide to gift your Furnished Holiday Lettings (FHL) business before 6th April 2025, holdover relief may be available. If structured correctly, it should be possible to defer the CGT payable until the recipient of the gift sells or otherwise disposes of the asset. Once holdover relief is no longer available, then there is no way to pass down the FHL business for Inheritance Tax and succession purposes without significant tax problems. We can provide all the required Property Tax, Inheritance Tax and Corporate Tax advice needed to get the right solution. 

If you have any questions about any tax planning opportunities featured in this article, our Property Tax Team will be delighted to support you. Please call 01473 359 720 or email propertytax@lbgroupltd.com and a team member will be in touch. 

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