The new Labour government has finished the job started by the outgoing Conservative administration, in ending the tax concessions for investors offering furnished holiday lettings.

Former Tory Chancellor Jeremy Hunt announced he would abolish the FHL tax concessions back in the Spring Budget, but the measure did not win Parliamentary approval in time to beat the deadline when the July General Election was called.

But now the new government has allowed HM Revenue and Customs to issue a policy paper confirming the original timescale that the FHL regime would end next April – a move which, HMRC says, “aligns the tax rules for furnished holiday lettings with those for other property businesses”.

The Furnished Holiday Lettings tax regime gave extra tax reliefs for costs incurred furnishing holiday lets that weren’t available to private rentals. 

Its abolition from April means holiday letting in the UK becomes much the same as buy to let: mortgage interest relief will be restricted to the basic rate of income tax and instead of claiming capital allowances for spending on a holiday property, investors will be restricted to claiming tax relief.

Any capital gains or income from a holiday let will form part of the investor’s UK or overseas property business . This means a higher or additional-rate taxpayer will pay 24% Capital Gains Tax on profits from the sale of a holiday let above £3,000. 

Elizabeth Small, a tax partner at law firm Forsters, says the move will effect prices for investors choosing to quit the sector: “Selling your portfolio of furnished holiday lets be prepared for a price chip from the buyer, because from April 2025, if you let properties that would currently now qualify as FHLs, you will no longer be able to claim Capital Gains Tax reliefs for traders, you will not be entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures and the profits will not count as earnings for pension purposes.

“This means that the buyer is likely to want to pay less for a FHL portfolio as his post tax return will be diminished. But there is some good news for the sellers of holiday homes – as well as other additional property – because the higher rate of capital gains tax on residential property gains falls from 28 to 24 per cent. The lower rate will remain at 18 per cent, but remember the CGT annual allowance is also reducing.

“Whether these changes are sufficient to encourage FHL owners to exit the short term letting sector and either sell to home owners or to move to long term letting is yet to be seen, but it could end up with owners simply not bothering to rent out and using the property for a couple of weeks a year, meaning pubs, restaurants and shops in holiday hotspots having fewer visitors.”

You can see the full details of HMRC’s announcements here: https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition