New HMRC tax rules for 'anyone who lets out their house, cottage or flat'

New tax rules are being introduced on holiday lets and will start in April. Anyone who lets out a house, cottage or flat as a furnished holiday let faces new rules under the new Labour Party government that will mean extra taxes and pension changes for some.

Furnished holiday lets (FHLs) have long enjoyed tax perks as small-scale tourism enterprises, but from April 2025, these benefits are set to be axed. Ben Edgar-Spier, Head of Regulation and Policy at Sykes Holiday Cottages, said in a warning: "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." He added: "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."

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"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." He said: "If your property is a qualifying Furnished Holiday Let, 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," he said.

"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."

He added: "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."