Owners of furnished holiday lettings (FHLs) have a limited chance to take advantage of current tax benefits before changes come into effect in April 2025, according to financial advice firm NFU Mutual.
To qualify as an FHL, a property must be available for hire for 210 days and let for 105 days or more in each tax year, excluding lettings to family and friends at no or reduced rates.
Upcoming legislation will align the tax rules for FHLs with those for long-term rentals.
Despite a change in Government, it has been confirmed that the new regulations will be implemented as planned.
Sean McCann, chartered financial planner at NFU Mutual, said: “Currently if you spend money on improvements such as putting in a new kitchen, bathroom, or central heating you can claim 100% tax relief (within limits).
“From April 2025, you will get tax relief on repairs to the property, replacing furniture or washing machines, but not for capital improvements.
“So, if you are planning to put in a new kitchen or extend the property, it may make sense to do these before April 2025.”
McCann added: “This means there is an opportunity to maximise pension contributions for the current year and take advantage of any unused allowance from the previous three years.”
Another significant change relates to Capital Gains Tax (CGT).
Currently, furnished holiday lettings are treated as ‘trading businesses,’ allowing access to various CGT reliefs when selling or gifting the property.
This will change from April 2025, with any gains taxed at either 18% or 24%, depending on income level.
McCann said: “If disposing of your holiday let was already in your plans, there may be benefits in doing so before the changes come into force.”
“The bottom line is that if you’re planning to sell or gift your FHL in advance of the changes, it’s important to take advice so you’re aware of all the implications before you make a decision,”
“Making the right decisions could save thousands of pounds in some cases.”
