Stephen Barratt, a partner in the Private Client Services team at James Cowper Kreston offers this help to landlords coping with changes to the Furnished Holiday Lettings tax regime.

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The Labour government will from 6 April 2025 tighten the tax reliefs available to owners of furnished holiday lets but welcome transitional arrangements soften the blow, says accountants James Cowper Kreston.

As the UK takes its summer holiday, the Chancellor of the Exchequer Rachel Reeves has revisited the Conservative party’s proposals to abolish the tax reliefs on furnished holiday lets, bringing them in line with buy-to-let properties.

However, existing holiday let investors fearing the complete removal of tax reliefs will find comfort in transitional arrangements that will see existing holiday let businesses continue to claim capital allowances, and benefit from key CGT rollover and business asset disposal reliefs for disposals after 5 April 2025 so long as conditions are met. Going forward, some property investors might even be able to claim income tax relief for losses sooner.

Holiday let investors who are higher rate taxpayers will face a cut in the income tax relief on their finance costs as relief will be restricted to just 20% from 6 April 2025 in line with long lets. Investors should be aware that this can create unexpected outcomes. But given fears that the government might have removed all tax reliefs it could have been a lot worse.

The changes for investors are disappointing but the transitional arrangements seem to recognise that a cliff edge abolition of critical reliefs would hit investors to unfairly. Given that many holiday lets are genuine commercial businesses, continued access to capital gains tax reliefs for existing investors makes sense, but it will discriminate against future investors looking to run a holiday let business.

These proposals will almost certainly act as a barrier to new entrants to the holiday letting business, but this might be part of a conscious policy to put a brake on investors owning property in holiday hotspots.

Businesses and individual owners of holiday lets are advised to take specialist advice to understand how these changes will affect their property portfolio, and to keep a close eye on the legislation as it passes through Parliament and becomes law.

What will change for new businesses from 6 April 2025

– Loan interest income tax relief will be restricted to basic rate for all holiday let owners.

– Capital allowances will not be available for new expenditure but will be replaced with relief for replacing domestic items.

– No business CGT reliefs on chargeable gains on disposing of property.

– Income from holiday lets excluded when calculating maximum pension relief.

Transitional arrangements

– Existing holidays lets will continue to benefit from capital allowances on expenditure already incurred.

– Losses generated from a holiday lets business can be carried forward and set off against other property rental income.

– Roll-over relief, business asset disposal relief, gift relief, relief for loans to traders and exemptions for disposals by companies with substantial shareholdings will remain available to current qualifying lets so long as conditions are met.

– Business asset disposal relief will continue to apply to a disposal that occurs within the normal three-year period following cessation of a business.