We have reported previously on the announcement of the abolishment of the furnished holiday let (“FHL”) regime in the March 2024 Budget. Our most recent notification in the August newsletter follows the detail of the changes announced at the end of July. Please click HERE for more details.
We have set out below the main changes and where planning may need to be considered, taking in to account that the forthcoming Budget may have an impact.
INTEREST
FHL currently benefit from full interest tax relief. After 6 April interest relief will be restricted and there is no phasing in, as there was when introduced to the buy to let market. This change may have a significant impact in respect of your cash flow and taxable profits.
If the change in interest rates is going to impact you significantly, then changing to a limited company can be an option, but several other factors need to be considered, including remortgaging and how to transfer the property ownership, as well as the long-term impact.
CAPITAL ALLOWANCES
Capital Allowances will no longer be available, replaced by repairs and replacement of domestic items, both of which give you 100% relief. The existing pool of allowances is allowed to be carried forward and set against future income.
However, the changes will mean that allowances available for capital improvements and/or initial outlay in preparing the property for rental will not be available after 6 April. Therefore, if you have any type of this work planned, you should complete the work before the end of the tax year to benefit from Capital Allowances. If you have completed work which have not claimed for, then consideration should be to making a claim in the 2025 tax year.
PROFIT SHARING
If your FHL is jointly owned the taxable profit can structured annually, so the lowest earner can receive a greater share of the profit to benefit from their personal allowance and basic tax rate band.
From 6 April this will no longer be available, ownerships shares need to be declared with the correct legal paperwork being in place and registered with the H M Land Registry, declaring beneficial interest ownership (i.e. how the property is owned and therefore how the profit is shared), which must be notified to HMRC within 60 days.
CAPITAL GAINS TAX
Currently FHLs are treated as business assets and therefore benefit from generous tax reliefs, including business asset disposal relief (10% tax on a sale subject to lifetime allowance) and hold over relief. If you are planning to gift the FHL to your children or are selling, this needs to complete before 6 April 2025. Further advice would be required to confirm reliefs are available and can be applied.
Despite all the above changes, VAT still applies if turnover is greater than £90k!
There is six months to review the impact and deal with any action points!
Should you need to discuss your position or planning options, please do not hesitate to contact us.
