Tax changes for owners of Furnished Holiday Lets – Advice from Saffery
In the spring of 2024, it was announced that the special tax rules for furnished holiday lettings (FHLs) will be abolished from 6 April 2025. In July, the new Labour government released a policy paper setting out the proposed changes for inclusion in Finance Bill 2024-25.
Until 6 April 2025, a property that qualifies as a FHL can benefit from various tax reliefs that aren’t generally available to rental property businesses. However, following the proposed changes many of the tax reliefs currently available will be removed.
What is an FHL?
To qualify as an FHL, a property must be based in the UK or the European Economic Area (EEA), furnished and let on a commercial basis, and the following conditions need to be met:
1. The property must be available for letting for 210 days a year.
2. It must actually be let for 105 days a year (the let days test).
3. The property must not normally be let for periods of more than 31 consecutive days to the same person, but if it is, those let days don’t count towards the number of let days in point two above.
4. The total of all lettings which exceed 31 days also can’t exceed 155 days.
There are two elections that can be made to reach the let days test. Where more than one FHL property is let in a year, an averaging election can be made to average the occupancy for all the properties that are let as FHLs. Alternatively, if a property meets the letting condition in some years but not others, a period of grace election can be made.
Income tax changes
There are rules restricting the amount of income tax relief available for the finance costs of a let property. Up to 5 April 2025, these restrictions do not apply to FHLs, and so full relief can be obtained for finance costs. From 6 April 2025 onwards, former FHLs will be treated in the same way as residential let property and the same finance cost restrictions will apply…
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