Furnished Holiday Let Tax Changes: Industry Experts Weigh In

The UK government's decision to abolish the Furnished Holiday Let (FHL) tax regime from April 2025 has sent shockwaves through the property investment community. As landlords and investors grapple with the implications, industry experts offer their insights on the changes and potential strategies moving forward.

Sarah Coles, head of personal finance at Hargreaves Lansdown, explains the significance of the change: "The tax advantages of furnished holiday lets have made them an attractive option for property investors for years. The ability to offset mortgage interest payments against tax has been a key draw. With this gone, many will need to reassess the viability of their investments."

The loss of mortgage interest relief is indeed one of the most significant changes. John Shallcross, real estate tax specialist at Blake Morgan LLP, elaborates: "From April 2025, FHL owners will only be able to claim a 20% tax credit on mortgage interest, rather than deducting the full amount from their rental income. For higher and additional rate taxpayers, this could mean a substantial increase in their tax bill."

The changes also affect how jointly owned FHLs can split profits. Nimesh Shah, CEO at Blick Rothenberg, comments: "The flexibility in profit allocation between joint owners has been a useful tax planning tool. Its removal means couples and business partners will need to rethink their strategies to ensure they're operating as tax-efficiently as possible within the new rules."

Another significant change relates to pension contributions. Tom Selby, head of retirement policy at AJ Bell, explains: "FHL income will no longer count as 'relevant earnings' for pension purposes. This could severely limit the amount some property owners can contribute to their pensions tax-free each year. It's a change that could have far-reaching implications for retirement planning."

The reforms also impact capital gains tax reliefs when selling FHLs. Zena Hanks, partner in the private wealth team at Saffery Champness, notes: "The loss of Business Asset Disposal Relief and other CGT reliefs for FHLs could significantly increase the tax bill when selling these properties. Investors need to carefully consider their exit strategies in light of these changes."

Despite these challenges, some experts see potential opportunities. Rob Lankester, managing director at The Holiday Let Mortgage Company, suggests: "While these changes will undoubtedly impact profitability, the demand for UK holiday accommodation remains strong. Investors who can adapt their strategies and focus on operational efficiency may still find success in this market."

As the April 2025 deadline approaches, experts unanimously advise FHL owners to seek professional advice. David Hollingworth, associate director at L&C Mortgages, concludes: "These changes are complex and far-reaching. It's crucial for FHL owners to review their portfolios, consider their options, and potentially explore alternative investment structures. Professional tax and financial advice will be essential in navigating these new waters."

The abolition of the FHL tax regime marks a significant shift in the UK property investment landscape. As investors adapt to this new reality, careful planning and expert guidance will be key to maintaining profitability in the evolving holiday let market.