Reminder: AirBnB Property Tax Changes 2025
The Labour Chancellor is going ahead with plans to abolish the furnished holiday lettings (FHL) tax regime from April 2025 as draft legislation is published.
This will remove the tax advantages that landlords who offer short-term holiday lets have over those who provide standard residential properties, such as buy to let long-term tenancies.
The government expects to raise £35m in extra tax in tax year 2025-26, and then £140m in 2026-27. This is set to accelerate in future years to £245m in 2028-29.
From April 2025 income and gains from a furnished holiday let (FHL) will form part of a person’s UK or overseas property business, and will be treated in line with all other property income and gains.
The income tax and capital gains tax (CGT) rules will come into force from 6 April 2025 and charge to corporation tax and chargeable gains from 1 April.
This will remove the current rules providing beneficial tax treatment for furnished holiday lettings compared to other property businesses.
To qualify as a furnished holiday let, properties:
· must be available for short-term letting to the public for 210 days and actually let for 105 days or more in each tax year; and
· should not be used as a long-term let of over 31 days for significant periods.
This change will remove the tax advantages that current furnished holiday let landlords have received over other property businesses.
This will affect four key areas by applying the finance cost restriction rules so that loan interest will be restricted to basic rate for income tax, removing capital allowances rules for new expenditure and allowing replacement of domestic items relief, withdrawing access to reliefs from taxes on chargeable gains for trading business assets, and no longer including this income within relevant UK earnings when calculating maximum pension relief.
There will be some transitional rules affecting capital allowances treatment with a short-term allowance for existing furnished holiday lets where they are in the middle of expenditure on an ongoing project.
For those with losses to carry forward, they will be permitted to be carried forward and be available for set off against future years’ profits of either the UK or overseas property business as appropriate.
Under current rules furnished holiday let properties are eligible for roll-over relief, business asset disposal relief, gift relief, relief for loans to traders, and exemptions for disposals by companies with substantial shareholdings.
These will be abolished but for transitional purposes; where criteria for relief includes conditions that apply in a future year these specific reliefs will be allowed where the furnished holiday let conditions are satisfied before repeal.
In relation to business asset disposal relief, where the furnished holiday let conditions are satisfied in relation to a business that ceased prior to the commencement date, relief may continue to apply to a disposal that occurs within the normal three-year period following abolition of the measure.
To prevent tax avoidance, the anti-forestalling rule introduced from 6 March 2024 to prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current rules will continue to apply.
Landlords of holiday lets could consider bringing the property into a corporate structure to take advantage of the full tax relief on finance, however they need to consider that there will likely be stamp duty to pay and possibly capital gains tax CGT). In addition, when they go to sell the property there will be no CGT allowance - although at the low threshold that it is currently at there is little advantage in that.
