From 6 April 2025, significant changes will be introduced to the Furnished Holiday Let (FHL) tax regime, placing holiday property owners in a critical position to review their tax strategies and business structures.

We advise you to assess the impact of these changes and make informed decisions to optimise your financial standing moving forward.

Upcoming changes to the FHL regime

The tax advantages currently enjoyed by FHL owners will be removed, bringing them into line with standard rental properties for tax purposes.

The main changes you should be aware of include:

• Capital allowances removed – FHL owners will no longer be eligible to claim capital allowances on items such as furniture and fixtures. However, a limited relief may be available through the ‘replacement of domestic items’ scheme, subject to specific criteria.
• Impact on Capital Gains Tax (CGT) – The current Business Asset Disposal Relief (BADR), which provides a reduced CGT rate of 10 per cent on disposals, will be abolished after April 2025. A new standard CGT rate of 24% will apply to residential property sales.
• Changes to rollover and gift holdover reliefs – These reliefs will no longer apply to FHL properties from April 2025, complicating tax strategies related to property sales or family transfers.
• Losses redefined – Starting in April 2025, losses will be treated as general rental losses and can be offset against any rental income from other properties within the same business.

While many property owners will face challenges with these changes, there are potential benefits for others. For instance, those with both long-term rental and FHL properties, as well as unused FHL losses, will be able to offset these losses against other rental income beginning in 2025/26.

Additionally, the new rules will simplify the tax reporting process by eliminating the need to maintain separate records for FHLs.

Should you consider running your business through a limited company?

Many owners of FHL properties are now evaluating whether incorporating their business could offer advantages. Operating through a limited company comes with several potential benefits, including:

• Reduced tax rates – The current Corporation Tax main rate is 25 per cent, or 19 per cent for companies with profits under £50,000. This can be a more tax-efficient option, especially for higher earners who may face personal tax rates of up to 45 per cent.
• More flexibility with income – Profits can be kept within the company, helping to delay higher personal tax bills.
• Tax planning opportunities – Holding property through multiple companies may help reduce VAT and small business rate liabilities.

However, incorporation also brings challenges. You’ll face additional administrative responsibilities, including annual filings and Corporation Tax returns.

Transferring an existing property into a limited company may also trigger Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT) liabilities, which could offset the tax savings.

Request professional advice to properly assess the pros and cons of incorporating, ensuring it aligns with your specific circumstances.

Your next steps as a FHL owner

If you own a FHL, it’s time to evaluate your next move before the upcoming changes in April 2025.

If selling the property is part of your strategy, acting before the April deadline could allow you to benefit from the current 10 per cent tax rate.

Alternatively, transferring the property as a gift could be an effective part of your long-term estate planning.

With the removal of FHL-specific tax advantages likely to increase your tax liabilities, seeking professional guidance as soon as possible is advised.

For a detailed discussion of how these changes might affect you and to explore your best options, please get in touch.