New holiday let rules from April will mean tax and pension change

For many years, furnished holiday lets (FHLs) in the UK have been able to utilise certain tax reliefs as micro tourism businesses, including those relating to various asset disposal reliefs, capital allowances and the ability to fully deduct finance costs. But, from April 2025, it looks like the tax treatment for furnished holiday lets is being removed. Things can still change, with the legislation still in draft and yet to receive Royal Assent, but now is the time for those impacted to consider what they can do to minimise the impact before it’s too late, according to experts.

With just five months to go, Ben Edgar-Spier, Head of Regulation and Policy at Sykes Holiday Cottages, explains some of the things to consider as a holiday let owner.

Ben said: "It’s important to remember that not all these changes will affect everyone, as not all holiday let owners benefit from the FHL rules currently. For example, one of the criteria to be deemed a FHL is that it is available for short-term letting for more than 210 days a year and actually let for 105 days.

"Additionally, those who don’t have a mortgage or any kind of finance agreement will not be affected by the change to the rate of mortgage interest relief, while in general, most owners that are only paying tax at the basic rate may not see any changes to their income tax liabilities either.

"However, there is no one size fits all answer, so you should speak to a tax advisor on whether the abolished tax reliefs do or don’t apply to you, before acting on the below.

"If your property is a qualifying FHL, then your self-catering business may have to pay extra tax when the new regime kicks in. For example, FHL business owners will no longer be able to use holiday let profits when calculating how much they can contribute to their pension fund, each year. Those currently able to claim Business Asset Disposal Relief when selling their holiday let will no longer be able to, unless they cease operating as a business before April 2025 and sell within three years of ceasing. Instead they will pay standard Capital Gains Tax (CGT) rates (currently 18% to 24%).

"When it comes to capital allowances, any new expenditure incurred on or after 6 April 2025 (1 April 2025 for limited companies) will now fall under the standard property business rules, which means only claiming capital allowances on replacing “domestic goods” rather than on the initial purchase of them. Therefore, now is the time for owners to review any capital expenditure they have made since they bought the property and see if there is a capital allowances claim to make before the deadline.

"There are a few options to consider to reduce the impact of these changes, but in all cases, speaking to an expert will help ensure that you’ve planned carefully enough to establish the options that would be most beneficial to your self-catering business.

"Sykes Holiday Cottages is working with the tax experts at Zeal to help ensure all our owners are prepared for the changes. Despite this change being on the horizon for owners, holiday letting remains a worthwhile long-term tourism business, with the average holiday let owner at Sykes earning £24,500 gross per year in 2023."

If you’re unsure about how you might be affected by the furnished holiday let changes in April, get in touch with Zeal here, or your chosen tax advisor.