The furnished holiday letting (FHL) tax regime is to be abolished from 6 April 2025 (1 April 2025 for companies). HMRC has recently published guidance on how this will work, although there is still some uncertainty.

From April 2025 FHLs and buy-to-lets will have the same tax treatment, with income and expenses from both pooled together. FHL finance costs will be restricted to a basic-rate tax deduction, although companies avoid this restriction.

Key changes

Unused FHL losses: These can be carried forward and set against future property income. This is quite generous: under the old regime, losses could only be relieved against future profits of the same FHL business.

Capital allowances: Where a FHL business has a pool of capital allowance expenditure, writing down allowances can continue to be claimed. Any new expenditure from April 2025 onwards will only be deductible where certain domestic items are being replaced (not the initial purchase cost).

Business asset disposal relief: Relief can still apply for three years after a business has ceased trading. However, the abolition of the FHL regime doesn’t count as cessation, so relief will not be available unless cessation actually takes place by 5 April 2025 (31 March 2025 for a company).

VAT: Despite the end of the FHL regime, rent from holiday accommodation will still be subject to VAT if the registration threshold is breached.

Trading activities?

Despite the repeal of the FHL regime, there will be a few letting businesses which continue to qualify as a trade. However, HMRC has declined to introduce a brightline test which would have clearly set out the distinction between property letting and trading activities.

Landlords of jointly let property need to be aware that the rules for sharing income will change. For buy-to lets, income is split 50:50 for husbands and wives or civil partners, unless the appropriate form is submitted to HMRC.