New guidelines for holiday lets are set to come into effect in April, bringing changes to tax and pension regulations. Experts advise owners of furnished holiday lets (FHLs) to prepare for the upcoming adjustments, which may impact their businesses significantly. For years, FHLs in the UK have benefited from various tax reliefs and allowances, but these are expected to be altered from April 2025. Although the legislation is still in draft form and pending Royal Assent, affected individuals are urged to take proactive steps to mitigate potential financial implications. Ben Edgar-Spier, Head of Regulation and Policy at Sykes Holiday Cottages, highlights key considerations for holiday let owners.
Owners of FHLs must meet specific criteria to qualify, such as availability for short-term letting for over 210 days annually and being let for at least 105 days. Those without a mortgage or any financing arrangements may not be impacted by changes to mortgage interest relief, while basic rate taxpayers may see minimal alterations in income tax liabilities. However, the situation varies for each owner, necessitating professional advice to assess the impact of abolished tax reliefs. If a property qualifies as an FHL, owners may face higher tax obligations under the new regime. For instance, contributions to pension funds using holiday let profits will no longer be permitted.
Additionally, Business Asset Disposal Relief may no longer apply to FHL owners selling their properties unless ceasing operations before April 2025 and selling within three years. Capital allowances on new expenditures from April 2025 will adhere to standard property business rules, affecting claims for replacing “domestic goods.” Therefore, owners are encouraged to review capital expenditure since property acquisition to identify potential capital allowances claims before the deadline. To alleviate the effects of these changes, owners have several options available, but seeking expert advice is crucial to devise effective strategies tailored to their businesses.
Sykes Holiday Cottages is collaborating with tax experts at Zeal to support owners in preparing for the impending adjustments. Despite the regulatory shifts, FHLs remain a viable long-term venture, with the average owner earning £24,500 gross annually in 2023. For owners uncertain of the impending changes’ impact on furnished holiday lets, consulting with experts like Zeal or tax advisors is recommended. As the April deadline approaches, it is essential for holiday let owners to proactively address these changes to ensure the continued success of their businesses.