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Tax Shake-Up for Furnished Holiday Let Owners

Published by Prerana
Published Date: May 10, 2024

The UK government has recently announced some changes in the tax treatment of Furnished Holiday Lets (FHL) that could have far-reaching effects on the holiday letting industry. The FHL status will be abolished in April 2025, leaving many holiday let owners unsure about their future and trying to assess their options.

In this context, it is important to understand the implications of these changes and what they could mean for holiday let owners across the country.

How Will FHL Changes Affect Owners Continuing their Holiday Letting Businesses?

Owners of Furnished Holiday Lettings (FHL) properties are facing a significant change in their tax landscape due to the proposed alterations. One of the most noticeable changes is in the way financing costs are treated. Previously, owners could offset their tax liability by deducting mortgage interest and other financing expenses from their rental income.

FHL Changes Affect Owners

However, under the new regime, relief for financing costs will be limited to a basic rate of 20% on finance costs or rental profit or the owner’s total adjusted income. This means that even if the FHL business operates at a loss in cash terms, there could still be a tax liability. This presents a major challenge for owners who have been relying on these deductions to manage their tax obligations.

How Can Owners Navigate These Changes When Selling Their FHL Properties?

Owners who are considering selling their holiday let properties need to consider the recent changes in tax laws. While the current Capital Gains Tax breaks offer a chance to make a profit, the transition requires careful planning.

It is important to ensure eligibility for business asset disposal relief and understand any potential transitional provisions to maximise returns and prevent tax liabilities. Additionally, the anti-forestalling rules add another layer of complexity, which highlights the importance of staying informed and consulting with an expert.

Conclusion

The UK government's decision to abolish Furnished Holiday Lettings (FHL) status is causing uncertainty among holiday let owners. This change will have a significant impact on the tax landscape for those in the industry. Owners need to make informed decisions and plan proactively to navigate the transition successfully.

Whether they decide to continue their businesses or consider selling, it is crucial to understand the implications of the new FHL changes and seek professional guidance to safeguard their financial interests.

Prerana
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