As announced in the 2024 March Budget, significant changes are set to reshape the tax landscape for furnished holiday lets (FHL). In this comprehensive guide, we’ll delve into the details of these tax changes, providing clarity on what they mean for holiday let owners and investors.
What are the main tax benefits currently available to holiday let owners?
• Interest incurred on borrowings is fully deductible against taxable profits.
• Beneficial capital allowances rules allowing tax relief for fixtures.
• A variety of capital gains tax reliefs, including potential for business asset disposal relief (10% rate on sale), rollover relief and gifts hold-over relief.
• Profits from holiday lets can be treated as relevant earnings for pension purposes
• Income from a holiday let which is held jointly by a married couple or civil partners is not caught by the default 50:50 split for income tax purposes
Abolition of Furnished Holiday Lettings (FHL) Tax Regime:
- From April 2025, the government plans to abolish the Furnished Holiday Lettings tax regime. This move aims to eliminate the tax advantage previously enjoyed by landlords who let out holiday properties.
Impact on Holiday Let Owners:
- Holiday let owners need to prepare for the upcoming changes, as the abolition of the FHL tax regime will alter the tax regime for their properties.
- Mortgage interest tax relief is to be abolished in line with the tax regime for buy to let properties. This means that holiday lets will be taxed on their turnover rather than profits. This regime will be introduced in April 2025. The main effect of this will be for higher rate tax payers but with the freezing of tax bands, more of us find ourselves paying higher rate tax.
- Understanding how these changes will affect tax liabilities and financial planning is crucial for holiday let owners to adapt effectively. Owners or buyers should take advice to understand their liabilities.
Capital Gains Tax (CGT) Reduction:
- As part of the budget measures, the higher rate of capital gains tax is set to be reduced from 28% to 24%. This reduction may have positive implications for holiday let owners when they sell their properties.
Evaluating the Bright Side:
- While these changes may initially seem daunting, there can be a silver lining. Holiday let owners should explore the broader implications and opportunities that arise from these tax adjustments.
- Understanding the potential benefits and drawbacks will empower holiday let owners to make informed decisions regarding their properties.
Planning for the Transition:
- Given the timeline for implementation, holiday let owners have a window of opportunity to assess their current tax strategies and make adjustments as necessary.
- Seeking professional advice from tax advisors or financial experts can provide valuable insights and guidance during this transitional period.
Navigating the New Landscape:
- As the tax landscape for holiday lets evolves, staying informed and proactive is key. Holiday let owners should stay updated on any further developments or clarifications regarding the tax changes.
- Adapting to the new tax regime may require strategic planning and adjustments to investment strategies for holiday let properties.
In conclusion, the tax changes outlined in the 2024 March Budget mark a significant shift for furnished holiday let owners. While the abolition of the FHL tax regime presents challenges, it also opens up opportunities for a fresh approach to tax planning and property investment in the holiday let sector.