2024/25 Holiday Let Tax Planning

From April 2025, owners of FHLs will face higher tax bills.

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Background

The Chancellor Jeremy Hunt abolished the Furnished Holiday Let tax regime in the March 2024 budget.

From April 2025, owners of FHLs will no longer be automatically treated as a trading business and will face much higher taxes as a result.

Whilst there is a small chance the changes could be delayed, they are unlikely to be reversed. Owners need to take action NOW.

NOTE – This guide primarily applies to personally owned property or held as a partnership.

What are the changes?

The changes are many and varied, accountancy bodies are still seeking clarity from HMRC on some of the details, but these are the Top 4 for most owners.

Mortgage Interest will no longer be tax deductible. This will mean your taxable profits will increase substantially, possibly putting you into a higher tax bracket. You’ll get a tax credit worth 20% of the mortgage interest, but this will not usually be enough to offset the additional tax.
You’ll no longer be able to claim Capital Allowances. This is where you can claim the cost of a large investment (Hot Tub, EV charger etc) against your tax bill.
You’ll face substantially larger tax bills when you sell or retire. Currently, FHLs qualify for generous reliefs from Capital Gains Tax. These reliefs will be abolished from April 2025 and in most circumstances CGT rates will rise from 10% to 24%!
Your FHL earnings will no longer qualify as eligible for making payments into a private pension.

What are my options?

One option will be to place your Holiday Let business into a Limited Company structure. This is known as incorporation. The company will own the property and you’ll own shares in the company.

This is not an easy option however, there are many things to think about and lots of indirect consequences too. Depending on the route taken, there may be Capital Gains Tax due as well as stamp duty (LTT here in Wales). The total CGT payable will nearly always be lower (usually by a considerable amount) versus if you continue to hold the property in your personal name.

There are additional costs when operating a Limited Company too. Finance costs may be higher, as will accountants fees. Your business will be registered with Companies House and certain personal details will become publicly accessible.

Benefits of being Limited

Your mortgage interest will continue to fully tax deductible.
You can still claim for large capital expenses (Capital Allowances).
You can claim CGT relief in a number of ways .
- Incorporation relief by transferring the capital gain to the company.
- Business Asset Disposal relief if you sell your property to the new company.
- Rollover relief if you sell the property and invest the proceeds in a new trading business.
If you already operate as a partnership, you may even be able to transfer the property to your new company completely free of LTT (Stamp Duty).

Who won’t benefit?

Incorporation won’t be right for everyone. If you have a relatively low turnover, you don’t have mortgage costs, or you plan on taking the profits out of the business every year, then this structure probably isn’t going to offer you much advantage.

If you don’t have the cashflow to pay any CGT or Stamp Duty due, then clearly this would also prevent you from incorporating.

What should I do next?

Don’t stick your head in the sand and think these changes won’t impact you – THEY WILL. Even owners with no mortgage costs or a low turnover will be affected by the changes to Capital Gains Tax.

Don’t let the taxman benefit from your complacency.

Work out the impact on YOUR business. The 2023/24 tax year has just finished, so now is a great time to put together your accounts ready for your tax return. Don’t wait until January!
Re-work your accounts but using the new tax rules for 2025. This will allow you to measure the impact on your profits and tax.
If your profits are adversely affected, then consider your options.
If your profits are largely unaffected, then you still need to consider your exit strategy? Are you planning to sell soon? Retire perhaps? Pass on to your children? All these plans are affected by the changes to Capital Gains Tax.

PropertyTax.Wales can help you with the entire process. For just £335 + VAT, we’ll complete your 2023/24 self assessment, show you how you’ll be affected next year, and outline a range of possible options.