Lamont Pridmore, a leading firm of Cumbrian accountants, is issuing an urgent warning to owners of Furnished Holiday Lets (FHLs) about significant tax changes taking effect from April 2025.
From April 2025, the tax advantages currently enjoyed by FHL owners will be removed. These changes will result in FHL properties being taxed similarly to traditional residential property rentals.
The benefits set to be lost include capital allowances, where FHL owners can currently claim up to £1 million in capital expenditure through the Annual Investment Allowance (AIA), and potential eligibility for Business Asset Disposal Relief, which offers a lower tax rate compared to Capital Gains Tax (CGT).
Furthermore, expenses such as mortgage interest, which can be fully deducted from rental income, will be limited to the basic rate of Income Tax.
Additionally, income from FHLs, currently classified as earned income and qualifying for relief at the owner’s highest rate of Income Tax, will no longer count towards UK earnings when determining the maximum pension relief.
FHL properties must meet specific criteria to qualify under the current regime, including being based in the UK or European Economic Area (EEA), and actively rented out to generate profit.
They must also be available for rental for at least 210 days annually, commercially let as an FHL for at least 105 days per year, and not exceeding 155 days per year for long-term rentals over 31 consecutive days.
Graham Lamont, CEO of Lamont Pridmore, commented: “The abolition of the FHL tax regime marks a significant shift for holiday home owners.
“We strongly advise property owners seek professional guidance to navigate these changes effectively. Planning ahead will be crucial to mitigate potential tax liabilities.”
Although these changes were announced by the previous Chancellor, Jeremy Hunt, the new Labour Government has already confirmed that it intends to proceed with these changes.
Given the substantial changes and potential tax implications, FHL owners should consider their options before the new rules come into effect.
This might involve selling the property and benefiting from the current lower 10 per cent Capital Gains Tax rate now.
Lamont Pridmore is available to discuss how these rule changes may impact FHL owners and explore viable options.
To find out more about their specialist tax planning services, please contact us.
