Holiday Let Owners be Prepared: Your Taxes are Changing from April 2025
If you own a holiday home, you will be impacted by tax changes starting from 6th April 2025.
One of the Autumn Budget giveaways was to reduce the top capital gains tax rate on the sale of residential property to 24%, down from 28%.
However, current Government plans are to abolish the beneficial tax treatment for Furnished Holiday lettings (FHLs) from 6 April 2025, impacting individuals across the UK.
The headline changes to the tax treatment for FHL’s listed below. Of course, these could change at the Autumn Budget 2024 if a new government comes into power, watch this space. However, the fact that these tax changes are punitive and will mean a potentially larger tax bill for FHL owners, now is the time to consider your options before 5th April 2025.
Mortgage interest
Mortgage interest on FHLs is currently treated as a 100% deduction from rental income.
From April 2025, relief will instead be given as a 20% tax credit so for higher and additional rate taxpayers this means a reduction in tax relief from 40% and 45% respectively.
Capital Gains Tax
Capital Gains Tax on disposal/sale of a FHL may currently qualify for Business Asset Disposal Relief (BADR), where the first £1m of lifetime gains are taxed at 10%.
Alternatively, the gain can be ‘rolled over’ on purchase of a new business asset/holiday let.
Basically, if you sold your FHL before April 2025, any gain in the property is only taxed at 10%.
From April 2025, the normal residential property CGT tax rate of 24% will apply.
Allowable Expenses
FHL businesses are currently eligible for capital allowances or 100% tax relief on physical assets bought for the rental property, such as furniture. So if you buy anything new for the property (that wasn't already there) or make changes to the property, you can claim the cost of these fully.
From April 2025, you will only be able to claim for the cost of replacing domestic items.
Pension Contributions
Currently, you can put any profit from the FHL (the higher of £3,600 or 100% of net ‘relevant earnings’) into your pension and get pension tax relief.
From April 2025, FHL profits will no longer be treated as relevant earnings.
