The government has issued draft legislation to abolish the special tax treatment of furnished holiday lettings (FHL) effective from 6 April 2025 for individuals (1 April 2025 for corporation tax). This change will remove the tax advantages currently received by FHL landlords in four key areas by:

  • Applying the finance cost restriction rules so that loan interest will be restricted to the basic rate of Income Tax.
  • Removing capital allowances rules for new expenditure and allowing relief when domestic items are replaced.
  • Withdrawing access to reliefs from taxes on chargeable gains for trading business assets.
  • No longer including this income within relevant UK earnings when calculating maximum pension relief.

After repeal, former furnished holiday let properties will become part of the person’s UK or overseas property business and be subject to the same rules as residential property businesses.

Transitional Rules

Where an existing FHL business has an ongoing capital allowances pool of expenditure, they can continue to claim writing-down allowances on that pool. Any new expenditure incurred on or after the operative date must be considered under the property business rules.

After the changes, former FHL properties will be part of the person’s UK or overseas property business as appropriate. That property business will then include the amalgamated profits and losses of all the properties in that business.

Losses generated from a person’s FHL business will be allowed to be carried forward and set off against future years’ profits of either the UK or overseas property business as appropriate.

Eligibility for CGT roll-over relief, business asset disposal relief, gift relief, relief for loans to traders, and exemptions for disposals by companies with substantial shareholdings will cease with effect from 6 (1) April 2025.

In relation to CGT business asset disposal relief, where the FHL conditions are satisfied in relation to a business that ceased prior to 6 April 2025, relief may continue to apply to a disposal that occurs within the normal 3-year period following cessation.

There is also an anti-forestalling rule intended to prevent obtaining a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules, effective from 6 March 2024.