Get ready, landlords! The government is about to shake up the tax rules on furnished holiday lets (FHLs) and it could cost you big time.

What’s Changing?

From April 2025, FHLs lose their special tax status. This means:

• No More Interest Deductions: You’ll only get a 20% tax credit on interest paid on loans, a massive blow for those with big mortgages.
• Higher Capital Gains Tax: Selling your holiday let will be a lot more expensive. Currently, you can pay as little as 10% on profits (with a lifetime limit of £1m) but after April 2025, you’ll face the regular capital gains tax (CGT) rates of 18% or 24%. This could change in the Autumn Budget, so things could get even pricier.
• No More CGT Rollover Relief: If you sell your holiday let before April 2025 and buy a new one, you can currently avoid paying CGT on the profit. After that, this perk is only available in exceptional circumstances.
• Capital Allowances Cut: You can’t claim capital allowances for improvements made after April 2025, meaning you’ll be paying more for renovations and upgrades.

What Should You Do?

It’s Time To Make A Decision:

• Sell Before April 2025: This could be the best time to cash in and avoid the harsher tax regime. But remember, you only have a £3,000 annual CGT exemption, so talk to an accountant to see how much you’ll actually pay.
• Pass It On To Family: Gifting your holiday let to a family member is an option. However, you might still have to pay CGT, and there could be inheritance tax implications down the line.
• Incorporate Your Business: Setting up a company could help you avoid some of the tax hikes, but there are costs involved and you’ll need to pay both personal and corporate tax on any profits.

Don’t Delay:

• Make Improvements Now: If you’re planning on doing any work to your holiday let, get it done before April 2025 to claim capital allowances.
• Check Your Tax Liability: Talk to a financial expert to get a clear picture of how much extra tax you’ll pay under the new rules.