In the March 2024 Budget, the then Chancellor, Jeremy Hunt, stated that the furnished holiday lettings tax regime would be abolished from 1 April 2025.
The Labour government announced it would continue to pursue this policy and pass legislation on this in the upcoming Finance Act.
Current rules
Under the current rules, landlords who own furnished holiday lets can:
deduct the full cost of their mortgage interest payments from their rental income
are entitled to capital allowances on furniture purchases
pay lower capital gains tax (10% business asset disposal relief) when they sell
are entitled to capital gains tax rollover relief, gift relief
Proposed changes
The changes will remove the current tax advantages that furnished holiday let landlords receive over other general property rental by:
applying the finance cost restriction rules, so that loan interest will be restricted to basic rate 20% for Income Tax (and not possible higher rates of income tax)
removing capital allowances rules for new expenditure and allowing replacement of domestic items relief
withdrawing tax reliefs for capital gain tax based on trading business assets
no longer including this income in relevant UK earnings when calculating the maximum pension contributions each tax year
Therefore, from 1 April 2025, all furnished holiday letting properties will form part of a person’s total property business and be subject to the same current rules as non-furnished holiday letting property.
Transitional rules
There are some specific transitional rules available to the owners of current furnished holiday lets.
continuation of the ongoing capital allowances pool of past expenditure. Any new expenditure incurred after 5 April 2025 will be treated under the general property business rules
historically losses generated from a furnished holiday let can only be carried forward and used against future profits of the same furnished holiday lets
in relation to business asset disposal relief, where the furnished holiday let conditions are satisfied, where the furnished holiday letting ceases prior to 6 April 2025, relief may continue to apply to a disposal that occurs within the normal three-year period following cessation.
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