Chancellor Jeremy Hunt’s recent Budget bombshell has sent shockwaves through the realm of furnished holiday lettings (FHL). Brace yourselves, as tax relief is set to be obliterated from April 6, 2025, leaving landlords and property owners scrambling to assess the financial wreckage.
In a stark revelation, tax experts at BDO have laid bare the impending fiscal impact, forecasting a storm of consequences for FHL owners. Paul Falvey, a tax partner at BDO, has ominously declared that while owners may face the brunt of tax losses post-April 2025, those wise enough to sell before April 6, 2024, stand to gain from a reduction in the higher rate of Capital Gains Tax (CGT) on residential property gains, dropping from 28% to 24%.
Falvey asserts, “The chancellor is clearly hoping that this will lead to significant numbers of property owners putting their holiday homes on the market in the 2024/25 tax year.”
Tax Tidal Wave Hits FHL Owners: BDO Unveils Financial Fallout
To comprehend the dire situation, BDO highlights the impending changes:
- Interest Inferno: Currently, interest on loans for furnished holiday letting businesses is deductible from rental income for tax purposes. Come April 6, 2025, this lifeline for individual businesses will be cut, replaced by a 20% tax credit. Higher-rate taxpayers face a drastic reduction in interest tax relief.
- Capital Gains Crunch: Presently, capital gains on FHL assets qualify for business asset disposal relief, taxed at a favourable 10% rate up to a lifetime limit of £1m. Post-April 6, 2025, these gains will be at the mercy of CGT rates, with 18% for standard rate bands and a harsh 24% for higher rate bands.
- Rollercoaster Relief Rides Out: Gains on the disposal of a furnished holiday let currently enjoy CGT rollover relief, but this safety net will vanish post-April 6, 2025. The option to deduct the capital gain from the tax base cost of a new asset will be a distant memory.
- Farewell to Furnished Holiday Letting Assets: Qualifying assets for FHL businesses currently benefit from capital allowances, but this windfall will vanish from April 6, 2025. Businesses may, however, seek solace in potential deductions for the cost of replacing domestic items.
- Pension Pummelling: Individuals relying on profits from FHL businesses for pension contributions will face a new reality post-April 6, 2025. The current eligibility for tax relief will morph, demanding individuals to seek professional advice to navigate the impending pension storm.
As the fiscal storm gathers, the fate of FHL owners hangs in the balance. Will this tax tsunami prompt a flood of properties onto the market, or will it reshape the landscape of rural homes and long-term residential lettings? Only time will reveal the true impact of Chancellor Hunt’s budgetary bombshell.