Furnished holiday lets beneficial tax treatment come to an end in April 2025

If this affects you, you will need to think about your tax position as soon as possible.

Do you jointly own your property?

From 6th April 2025 those who jointly own a furnished holiday let with their spouse/civil partner will no longer have the flexibility of allocating profits between them. The profits will need to be split 50:50 between the co-owners (in the same way as other rental properties).

Where property is owned jointly by spouses/civil partners, any income arising from it is deemed for tax purposes to be split equally between the couple, regardless of their underlying beneficial ownership.

Moving forward couples will only be able to split profits in different proportions, if the proposed income split follows the actual underlying beneficial ownership of the property. In order to do this, you will need to fill in Form 17 on 6th April 2025 and submit it to HMRC within 60 days. Evidence of the actual underlying beneficial ownership of the property will need to be declared.

Capital allowances have been replaced

Capital allowances will no longer be available for furnished holiday lets they will be replaced with Replacement of Domestic Items Relief (RODIR).

RODIR only covers replacements rather than new items and isn’t available if there is any element of capital improvement.

What about capital taxes?

Furnished holiday lets currently qualify for Capital Gains Tax (CGT) gift relief. This enables capital gains to be deferred even where a furnished holiday let is given away directly to an individual.

They also qualify as business assets for the purpose of rollover relief. Meaning that gains can be deferred by reinvesting in other qualifying business assets. You will only be able to claim rollover relief if you have sold your furnished holiday let before 6th April 2025.

An HMRC policy paper published last year confirmed that business asset disposal relief will only remain available in connection with furnished holiday lets after 6th April 2025 where the business has ceased before that date.

Relief for mortgage interest will be limited

Relief for mortgage interest on former furnished holiday lets will be limited to a 20% tax reducer from 6th April 2025. For furnished holiday let landlords who are higher-and additional-rate taxpayers, will result in higher tax liabilities.

How are your pension contributions affected?

Previously, furnished holiday let profits counted as relevant earnings for pension contribution purposes, allowing landlords to pay more into their pension. However, furnished holiday let landlords still wanting to make significant pension contributions, but who have little or no other income may not have enough relevant earnings from 2025/26 to cover their normal pension contributions.

Talk to us if you feel you will be affected by these changes.