Amidst uncertainty around actions that the government will take in the forthcoming Budget, one action that is already confirmed is that it will repeal the special tax rules relating to the commercial letting of Furnished Holiday Accommodation (FHL).

The FHL rules have generally treated such letting as a trade and so several preferential tax rules have applied, however, moving forward, income and gains from FHL will subsequently form part of the person’s UK or overseas property business and be treated in line with all other property income and gains.

Some of the key amendments to FHL rules are:

• The definition of relevant UK earnings for pension purposes is amended to exclude income from FHL, meaning individuals can no longer make tax-relievable pension contributions on it.
• The amount of income tax relief landlords can get on residential property finance costs is restricted to the basic rate of income tax, and now includes FHL finance costs.
• Bringing them in line with other property rental businesses, FHL are now prohibited from claiming capital allowances but instead claim on the replacement on certain items.
• Where property is jointly owned by individuals who are married or in civil partnerships and who live together, it will be assumed that each party is entitled to the income in equal shares.
• The rules which allowed FHL to be treated as a trade for various capital gains tax reliefs are withdrawn in relation to disposals made on or after 6 April 2025 (1 April 2025 for Corporation Tax).

Whilst changes to the regime may be concerning to those who own furnished holiday lets, at Frost Wiltshire we have much expertise in tax planning and mitigating the impact of rule changes. If you’d like some advice or know someone who owns a furnished holiday let and is concerned about what the changes may mean for them, give us a call, send us an email or message us on WhatsApp – we’d be more than happy to help!