HM Revenue and Customs (HMRC) have published draft legislation and a policy paper outlining the proposal for the abolition of the furnished holiday lettings (FHL) tax regime. This was originally announced by the previous government and any hopes that this may be stalled by the new government are now laid to rest.
The new measures are proposed to take effect on or after 6 April 2025 for income and capital gains tax, and from 1 April 2025 for corporation tax.
Here’s what you need to know:
Key Changes:
- End Date: The FHL regime will be abolished from 6 April 2025 for individuals and 1 April 2025 for companies.
- Loan Interest Relief: From April 2025, loan interest relief will be restricted to the basic rate for income tax.
- Capital Allowances: New expenditure will no longer qualify for capital allowances. Instead, relief will be available for replacing domestic items.
- Capital Gains Reliefs: Reliefs for trading business assets will be withdrawn.
- Pension Relief: FHL income will no longer count towards relevant UK earnings for pension relief calculations.
Transitional Rules:
- Existing Capital Allowances: Businesses can continue to claim writing-down allowances on existing capital allowances pools.
- Losses: Unrelieved losses from FHL income will be carried forward and combined with non-FHL losses.
Anti-Forestalling Rule:
- Purpose: To prevent tax advantages from unconditional contracts made after 6 March 2024.
- Exceptions: Contracts made for commercial reasons or between unconnected persons are exempt.
Planning Ahead:
- Advice: It’s crucial to review situations involving held-over or rolled-over gains and assumptions about Business Asset Disposal Relief (BADR).
- Partnerships: Husband-and-wife partnerships will revert to a 50:50 profit split unless Form 17 is used.
The FHL regime’s end marks a significant change in the tax landscape, and it’s essential to plan accordingly.
For more info, please see: Furnished holiday lettings tax regime abolition - GOV.UK (www.gov.uk)