Tax changes for furnished holiday lets
Understand the implications of FHL tax changes and plan ahead for your future
Changes to Furnished Holiday Let tax rules
In the March 2024 budget, the Chancellor announced the end date for the FHL tax regime – the 6th April 2025. This change eliminates the tax advantage for landlords to let out FHLs for a short period.
The new regulations aim to streamline the tax system and ensure fairness across different types of property letting. As a result, landlords who have received tax benefits for their furnished holiday lets will need to reassess their financial strategies and comply with the new rules. This shift is expected to significantly impact profitability and investment decisions for many FHL owners. Understanding the full impact of these changes is important for landlords to efficiently navigate the transition.
Have the best capital allowances consultants on your side
This announcement may have stirred some feelings of uncertainty among FHL owners and investors about your position going forward. At Eureka Capital allowances, we have over 20 years of experience in capital allowances, and will be able to offer support and guidance to FHL owners during this distressing period.
At Eureka Capital Allowances, we are also able to provide our knowledge and services to pubs and restaurants, B&Bs, offices, doctors and dentist surgeries and care homes and nurseries!
What is an FHL?
A FHL is a type of short-term rental accommodation that, originally, was seen as a business for tax purposes and property owners benefited from several different tax advantages, as long as their property met the necessary criteria.
What were the furnished holiday let Capital Allowances rules before the budget announcement?
Before the budget announcement in March 2024, and until the deadline in April 2025, capital allowances provide tax relief for FHL owners on the reduction in value of ‘plant and machinery assets’, such as furniture, fixtures and fittings.
However, a short-term rental had to meet several different criteria in order to be considered am FHL for tax purposes:
How will changes to the capital allowance tax rules affect FHLs?
Under the current FHL rules, owners can claim capital allowances on qualifying expenditure, which helps reduce their taxable profits. These allowances include:
- Plant and Machinery Allowances: Owners can claim for items such as furniture, fixtures, and equipment used in the holiday let.
- Integral Features Allowances: This covers costs associated with essential services and installations within the property, such as heating systems and electrical wiring.
- Annual Investment Allowance (AIA): This allows owners to deduct the full value of qualifying assets from their profits up to a specified limit, accelerating tax relief.
The beneficial tax treatment for FHLs will be abolished from 6th April 2025. This means these capital allowances will no longer be available and so landlords will face higher taxable profits. This change will increase the financial burden on FHL owners, making it more costly to maintain and upgrade their properties.
Transitional Rules relating to Capital Allowances
Luckily, the policy papers published on the 29th July did offer some room for optimism. These transitional rules are still favourable to furnished holiday let owners.
As it stands, if a capital allowances claim is made before the deadline in April 2025, any unused pools or losses can continue to be claimed beyond that date, and used to reduce the tax you pay on your FHL profits until the pool is exhausted.
Your local Capital Allowances Consultants
At Eureka Capital Allowances, we have over two decades of experience in providing tax savings for our clients. We are proud to be able to offer advice and support to FHL owners on how to manage these changes and provide insight into other potential ways to manage your tax liabilities.
What are capital allowances, and how do they currently benefit FHL owners?
Capital allowances are deductions that FHL owners can claim on qualifying expenses, such as furniture, fixtures, and equipment, used in their holiday lets. These allowances reduce taxable profits, lowering the overall tax liability.
How will the abolition of the FHL tax regime affect capital allowances claims?
From April 6th, 2025, FHL owners will no longer be able to claim capital allowances on their properties. This means that costs associated with purchasing and maintaining items like furniture, fixtures, and equipment will no longer reduce taxable profits. Because of this, landlords will face higher taxable income, increasing their overall tax burden.
However, the Transitional Rules mean that FHL owners who have claimed capital allowances before the deadline can continue to use any unclaimed or leftover tax relief from these expenses to reduce their tax, even after April 2025. This benefit will continue until the pool is exhausted.
Can FHL owners still claim capital allowances on expenses incurred before April 6th, 2025?
Yes, FHL owners can still claim capital allowances on qualifying costs incurred before April 6th, 2025. However, any claims for expenses after this date will not be eligible for capital allowances under the new tax rules. We advise to ensure all qualifying purchases are made and claimed before the deadline.
What should FHL owners do to prepare for the upcoming changes in capital allowances?
FHL owners should review their current and planned expenditures on qualifying assets. It may be beneficial to make purchases faster in order to claim capital allowances before the April 6th, 2025 deadline. Consulting with a capital allowances advisor, like us here at Eureka Capital Allowances, to maximise available tax relief before the changes take effect is also recommended.
Are there any alternative tax reliefs available for FHL owners after the abolition of capital allowances?
After the abolition of capital allowances for FHLs, owners may need to explore other tax reliefs and deductions available for rental properties, such as deducting repair and maintenance costs. Consulting with a tax professional can help identify alternative strategies to manage tax liabilities effectively.
Questions?
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