Furnished Holiday Lets: Critical Tax Changes from April 2025

Major changes to furnished holiday let tax rules will come into effect from April 2025. These furnished holiday let changes will remove the special status that such properties have enjoyed for decades.

Understanding these furnished holiday lets tax changes is essential for anyone who owns or operates such properties.

Key Changes to Furnished Holiday Lets Tax

The following changes have been proposed:

• Finance Cost Restriction

Applying the finance cost restriction rules means that loan interest will be restricted to basic rate for Income Tax. This aligns with the treatment of residential buy-to-let properties.

• Capital Allowances Changes

The new rules remove capital allowance rules for new expenditure. They allow replacement of domestic items relief instead.

Any unused capital allowance pool can be carried forward and writing down allowances claimed each year.

This represents a significant shift in how owners can claim tax relief on items within the property.

• Withdrawal of Capital Gains Tax Reliefs

The changes withdraw access to  Business Asset Disposal Relief (formerly Entrepreneurs’ Relief).

• Pension Contributions Impact

FHL income will no longer be included within relevant UK earnings when calculating maximum pension relief. This could affect how much some owners can contribute to their pensions.

• Losses

Any losses incurred by the FHL in the current year or carried forward from previous years will be treated as losses of the ongoing UK or Overseas property business going forward. This means the losses can be set off against other property income for individuals, or against other income for companies in the following year.

Planning Considerations

If you currently operate furnished holiday lets, you should consider:

• Whether to dispose of properties before the rules change
• The impact on your pension contribution capacity

How We Can Help with Furnished Holiday Lets Tax

At Lewis Brownlee, our property tax specialists can help you:

• Navigate these significant furnished holiday lets tax changes
• Assess whether accelerating disposal before April 2025 would be beneficial
• Understand the tax impact of these changes on your specific properties

Contact us today to discuss how these furnished holiday lets tax changes might affect your property investments and what steps you can take to prepare.