For many years, short term holiday lettings that met the criteria for FHL treatment were given notional trade-like status. Consequently, this came with certain tax breaks that ‘normal’ lettings did not, including:
- Ability to claim capital allowances on household items.
- Profits counting as relevant earnings for pension contribution purposes
- Preferential Capital Gains Tax (CGT) rates and reliefs
- More flexibility in splitting profits / losses between owners (particularly between spouses)
It was announced that these breaks will be withdrawn from 6 April 2025 but that anti-forestalling measures will also be brought in from 6th March 2024. The wording of the announcement is ambiguous on certain details but the feeling is that these measures will deem any disposal of FHL property to be subject to normal residential property CGT rates (18%-28%) for any disposals where the contract for sale was not in place prior to the budget. This would prevent a FHL owner from selling their property before 6 April 2025 to get the lower CGT rate of 10%.
The upper CGT rate falls to 24% where the exchange of contracts is after 5 April 2024.
It is important to remember that these are proposed changes and are not yet law. With the likelihood of a general election in the near to medium term there is always the potential that these announcements could be changed or scrapped entirely by a new government. If the measures are followed through, we expect that transitional rules will need to be drafted to deal with the changes, to include matters like the treatment of capital allowances and any losses carried forward from the old regime.
In the short term therefore there is a vacuum of information and detail that we are awaiting the government to address and will keep clients informed as soon as we know more.
If you have any particular queries, please get in touch with your usual contact at Bush & Co.
