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Tax Update on Furnished Holiday Lets - July 2024




On the 29th July 2024 HMRC provided more detail on the FHL regime for the tax year starting 6th April 2025.


Those changes are:


·        applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax.  


The outcome?   Currently any loan/mortgage interest on FHL properties has been allowable expenditure at 100%.  This will move to join the same rules as other property income, whereby you receive a 20% tax credit relief on loan/mortgage interest.   If your interest payments were £8k then the tax-deductible relief is restricted to £1.6k.


·        removing capital allowances rules for new expenditure and allowing replacement of domestic items relief.  


Outcome - once your current capital allowances pool (assets purchased and cost spread over multiple years for tax) have been wound down then only replacements of owned assets will be an allowable deduction.   Any new assets will have no capital allowance deduction.


·        withdrawing access to reliefs from taxes on chargeable gains for trading business assets.  


Outcome - no business asset disposal relief providing a 10% Capital Gains Tax rate on any gain.

·        no longer including this income within relevant UK earnings when calculating maximum pension relief.  


Outcome - restricting what you can put into your pension.   The current rules are 100% of your relevant UK earnings or £3.6k, whichever is higher.


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


·        Outcome - under current rules a loss generated from a FHL property business can only be carried forward and utilised against future profits of that same FHL business — 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

 

These are big changes to legislation, partly it seems to bring it in line with other property income tax rules and therefore providing tax simplification.   However the policy changes  bring into the treasury an estimated £600m over 5 tax years and is part of the overall plan to bridge the deficit gap.


If you want to understand how this will specifically effect your holiday let income then please get in touch.



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