26 March 2024
In the recent budget, the Chancellor announced the Furnished Holiday Letting (FHL) tax regime will be abolished from 6th April 2025. This will eliminate the tax advantage landlords receive when they let short-term FHL properties over landlords who let residential properties to long-term tenants.
The income for individuals with FHL and non-FHL properties will no longer need to be calculated and reported separately.
Current criteria for FHLs
To currently qualify as a FHL a property must be available to be let for 210 days a year and actually let for 105 days a year. Within the current regime, qualifying as an FHL gives a more beneficial treatment of mortgage interest, the ability to claim Capital Allowances and, upon selling, a lower rate of Capital Gains Tax than would be given upon selling a residential letting property.
Potential other effects of the abolition of FHLs
The legislation hasn’t yet been drafted and the details of the change are not yet known. However, it is likely to affect:
- Capital Gains Tax;
- Mortgage interest treatment;
- VAT position;
- Capital allowances available to claim;
- Income available for pension contributions.
Additional changes for FHLs
Along with this, there have been other changes to FHLs in the last few months, as outlined below.
Planning permission for new furnished holiday lets
The Government has announced it is introducing a new planning class for holiday lets in England, potentially as early as Autumn 2024 (date not confirmed). Existing short-term lets will be automatically reclassified into the new use class and will not require planning permission. These measures are focused on short-term lets and will not affect hotels, hostels and B&Bs.
Planning permission will be required for all homeowners who wish to use their property as a short-term let. This is defined as ‘a dwellinghouse that is not a sole or main residence, for temporary sleeping accommodation for the purpose of holiday, leisure, recreation, business or other travel’. This will apply to holiday homeowners who let out their home(s) for over 90 days a year.
National register of FHLs
There will be a mandatory national register of FHLs, which will give local authorities information about short-term lets in their area.
Short-term lets rules to protect communities and keep homes available
Fire regulation changes
From 1 October 2023, new fire safety guidance came into force on all holiday homes in England and Wales. Holiday homeowners must comply with the new rules or risk being forced to stop renting until it has been made fire safe. Non-compliance risks an unlimited fine or a prison sentence of up to two years.
Some of the big changes within the new fire regulations for ‘small premises’ include:
- Formally recorded risk assessments;
- Escape routes lined with 30 minute fire doors;
- Escape routes needing emergency escape lighting, this can be plugged in torches in smaller properties, although some properties may need full escape lighting;
- Exit doors such as front and back door should be easy to unlock and must not need a key to unlock from the inside, for example a simple latch or thumb turn;
- Hard wired, linked smoke detectors in all hallways, corridors, staircases, lounges, dining rooms and bedrooms;
- Heat alarm in the kitchen and any other room where a false smoke alarm might occur, such as the laundry or utility room.
NB: This is not a full and extensive list of the requirements.
Small premises include houses, cottages, chalets and B&Bs (up to two floors, sleeping a maximum of ten and no more than four bedrooms) or an individual flat (either block of flats or property converted into flats, other than large flats).
For guidance on the changes to fire safety on small guest paying accommodation, please see the Home Office guidance here.
Larger properties are defined as a property which is open plan (no matter the number of bedrooms) or any property which sleeps ten or more guests or has more than four bedrooms.
For guidance on the changes to fire safety for large or more complex guest paying accommodation, please see the Government guidance here.
How can Haines Watts help?
Haines Watts has extensive experience working with clients who operate FHLs. If you have any questions regarding the abolition of FHLs or any of the other changes which are being implemented in this sector, please get in touch with your usual Haines Watts contact.
