The recently published details of forthcoming reforms to the tax treatment of Furnished Holiday Lettings (FHL) income, which were initially announced in the 2024 Budget but omitted from the Finance Bill, signal significant changes effective from the end of the 2024/5 tax year. These reforms, which were announced on 30 July, were confirmed as part of the 2024 Budget package.
Key points:
- Integration into property business:
- FHL income for individuals, corporations and trusts will be integrated into the person's UK or overseas property business
- The distinct tax treatment and separate reporting requirements for FHLs will be abolished
- Changes in tax benefits:
- Loan interest: the full allowability of loan interest for FHLs will be removed
- Capital allowances: the favourable capital allowances rules for FHLs will no longer apply
- CGT reliefs: access to reliefs from taxes on chargeable gains on trading business assets will be eliminated
- Pension relief: FHL income will no longer be included as relevant UK earnings for calculating maximum pension relief
- New treatment rules:
- Former FHL properties will now be treated like any other property within the person's UK or overseas property business
- The amalgamation of profits and losses of all properties within the property business will be allowed, removing the restriction on loss offset between FHLs and other properties
- Transitional rules:
- Replacement of domestic items relief: former FHL properties will be eligible for this relief instead of the more beneficial capital allowances
- Ongoing capital allowances pool: existing FHL businesses with a capital allowances pool can continue to claim writing-down allowances on that pool
- Brought forward losses: FHL losses carried forward can be set off against future profits of the UK or overseas property business, as appropriate
- CGT reliefs: the CGT benefits such as roll-over relief, business asset disposal relief and gift relief will cease. However, specific rules will protect previously granted reliefs if the conditions were satisfied before repeal.
- Business asset disposal relief: relief may still apply to disposals within three years following the cessation of a business that met FHL conditions prior to the reform commencement
- Anti-forestalling rule: this rule prevents obtaining a tax advantage through the use of unconditional contracts to secure capital gains relief under current FHL rules, effective from 6 March 2024
These changes signify a substantial shift in the tax landscape for FHL owners, necessitating careful planning and adjustment to the new rules for future compliance and optimisation.
*The views expressed are the author’s and not ICAEW’s
