What Landlords Need to Know About FHL Abolition

The UK property sector is on the brink of a monumental shift.

For decades, landlords have enjoyed lucrative tax benefits through the Furnished Holiday Lettings (FHL) regime.

However, come April 2025, this regime will be abolished, leaving many to wonder: What does this mean for me? How will this impact my investments? And most importantly, what steps should I take now to safeguard my financial future?​

Keep reading to find out more…

What is the FHL Abolition?

The Furnished Holiday Lettings (FHL) regime, introduced in 1984, was designed to support landlords offering short-term holiday rentals by providing them with significant tax advantages.

This regime helped property owners maximise their rental profits while benefiting from tax reliefs typically reserved for businesses. Key advantages included:

• Full mortgage interest relief
• Eligibility for certain capital gains tax relief
• The ability to claim capital allowances on furnishings and equipment

However, the government has announced that, effective from 6 April 2025, these perks will be withdrawn. This means that holiday lets will be taxed in the same way as standard residential properties, removing the financial incentives that have made them an attractive investment for landlords.

The decision is expected to have a significant impact on the short-term rental market, prompting landlords to reconsider their investment strategies.

What Does This Mean for Landlords?

The abolition of the FHL regime carries profound implications for landlords, including:

• Finance Cost Restrictions: Landlords will no longer be able to fully deduct finance costs from their rental income. Instead, they’ll receive a 20% tax credit, meaning higher taxable profits and potentially larger tax bills for those with mortgages on their holiday lets.
• Capital Gains Tax (CGT) Reliefs: Right now, landlords selling FHL properties can benefit from Business Asset Disposal Relief (BADR), which reduces capital gains tax (CGT) to just 10%. However, from April 2025, this relief will no longer apply, and sellers will face higher CGT rates of 18% or 24%, increasing their tax bills.
• Capital Allowances: Landlords will not be able to claim tax relief on furnishings or property upgrades. Instead, they can only claim relief for replacing old items, not for new purchases or improvements. This may increase costs for maintaining or upgrading properties. However, they can still claim capital allowances on past expenditure until the balance is used up.
• Pension Contributions: Landlords won’t be able to use FHL profits to make tax-efficient pension contributions. Previously, these contributions expanded the basic rate tax band, reducing overall tax liability. With this benefit gone, saving for retirement through rental income will become less tax-efficient.
• Losses: The abolishment means that landlords are no longer required to track FHL losses separately. Instead, any losses from holiday lets can be used to offset income from other rental properties, providing more flexibility in tax planning. However, this also means that FHL profits can’t be treated independently for tax benefits.

What Are the Next Steps for Landlords?

You could either sell your property, keep renting it out, or retire and live in the property.

How you choose to respond to the abolition of FHL status will depend on factors like your property’s profitability, long-term plans, and financial objectives.

Before the deadline, it’s important to assess your FHL business’s overall profitability and take the following into account:

1. Financial Review

Assess the financial performance of your holiday let. Understand how the loss of tax benefits will impact your net income and overall investment returns.

2. Tax Planning

Consult with tax professionals to explore strategies like restructuring ownership, considering incorporation, or adjusting rental strategies to mitigate increased tax liabilities.

3. Diversification

Evaluate the potential of diversifying your property portfolio. This might involve shifting focus to long-term residential lets or exploring other investment avenues.

4. Stay Informed

Stay up-to-date with changes in property laws and local council rules, particularly when it comes to council tax on second homes. This will help you avoid unexpected costs and make sure you’re always in the know.

Act Now to Secure Your Investment

With the April 2025 deadline approaching, time is of the essence.

Delaying action may lead to unexpected tax costs and lower returns. If you act now, you’ll be able to smoothly navigate these changes and keep your investments profitable.

At Haggards Crowther, we specialise in property assets and taxation and are here to help landlords through these challenging times. Our expert team is ready to offer personalised advice, ensuring you make smart decisions to protect your financial future.

Don’t leave your investments to chance.

Reach out to us today to discuss how the FHL abolition affects you and discover strategies to optimise your property portfolio in these uncertain times.

FAQs

​​How will the new tax rules impact my rental income?

The biggest change is the loss of full mortgage interest relief, which means more of your rental income will be taxable. You’ll also no longer be able to claim capital allowances on furniture and fittings, increasing overall costs.

​​Should I consider selling my holiday let before April 2025?

Selling before the changes take effect may allow you to benefit from the current capital gains tax reliefs available to FHLs. However, this decision depends on market conditions and your long-term investment goals. Seeking expert financial advice is crucial.

​​Will my holiday be subject to council tax instead of business rates?

Possibly. Many FHLs currently qualify for business rates instead of council tax. With the tax regime changing, local authorities may reassess your property’s classification, which could lead to higher council tax bills.

​​How can I reduce my tax liability after the FHL regime ends?

​​Strategies such as restructuring ownership, incorporating your rental business, or switching to a long-term tenancy model could help mitigate tax burdens.

A specialist property accountant can guide you through the best options for your circumstances.

For personalised advice, contact Haggards Crowther at enquiries@haggards.co.uk or visit Haggards Crowther to speak with an expert.

Andrew Haggard FCA

Andrew founded Haggards Crowther with his brother in 2004 and took over as Managing Partner in May 2023. He has always been closely involved in client work, in particular providing high level strategic tax and structuring advice, business advice and supporting the technical and compliance teams.

As Managing Partner, he has focussed on growing the business and ensuring the firm upholds its core values of Quality of Service, Innovation, Collaboration and Integrity. These remain central to all that we do both internally and in serving our clients.

A Fulham resident for over 30 years Andrew is closely connected with the local business community and supporting many of them on their journeys. He is especially linked with fellow start-up entrepreneurs advising them on their growth strategies and optimal structures.

A passionate Fulham FC supporter, along with his two sons, Andrew rarely misses a game. He plays and coaches volleyball, something he has done since university in Edinburgh, and which offsets another of his passions: exploring the vast and diverse range of food that London’s restaurants have to offer.

He has a keen interest in many conservation projects especially in protecting endangered species of birds and actively supports the Mabula Project in South Africa. This charity supports the Southern Ground Hornbill, a charismatic species of cultural and ecological importance threatened by loss of habitat through the encroaching development of the savannah.