Owners of furnished holiday lettings (FHLs), including farmers and landowners, have a brief opportunity to take advantage of several current tax benefits.

According to NFU Mutual, these benefits will be eliminated under new legislation coming into effect next April.

To qualify as an FHL for tax purposes, a property must be available for rental for 210 days and let for 105 days or more within each tax year. Rentals to friends and family at reduced rates do not count.

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The upcoming legislation, announced in the spring budget, aims to line up the tax framework for FHLs with that of the long-term rental market.

Despite the change in government, it has been confirmed that the new regulations will continue as planned.

The new rules involve significant modifications to capital allowances, as Sean McCann, a chartered financial planner at NFU Mutual, elaborates.

The new rules involve significant modifications to capital allowances, as Sean McCann, a chartered financial planner at NFU Mutual, elaborates.

“Currently, if you invest in improvements such as a new kitchen, bathroom, or central heating, you can claim 100% tax relief (within limits).

“Starting April 2025, you will receive tax relief for repairs to the property, as well as for replacing furniture or appliances, but not for capital improvements.

"If you're considering installing a new kitchen or expanding the property, it may be wise to complete these before April 2025."

Another significant change is that profits from FHLs will no longer be classified as earned income for pension purposes.

This offers an opportunity to maximise pension contributions for the current year and use any unused allowance from the previous three years, according to Mr McCann.

“But it is perhaps the new rules around Capital Gains tax (CGT) that require the most immediate attention, particularly among those who might already be thinking about selling their holiday let.”

Currently, furnished holiday lets are categorised as ‘trading businesses’ and can benefit from various CGT reliefs when selling or gifting the property.

However, this will change in 2025. Selling or gifting a property will be treated as a disposal for CGT, with any gain taxed at 18% for basic rate taxpayers and 24% for those in higher tax bands.

“If disposing of your holiday let was already in your plans, there may be benefits in doing so before the changes come into force,” Mr McCann advises.

On selling the property, you may be able to claim Business Asset Disposal relief – which allows you to have up to £1m of gains during your lifetime taxed at 10%.

“In a scenario where you are selling and buying a new FHL, or other qualifying trading asset, you can ‘roll over’ all or part of the gain, which allows you to defer all or part of the CGT payable.

“Or if you are gifting the property, you and the person you are giving it to can claim ‘Gift Hold over relief’. This means, there is no CGT at the time of the gift and any CGT is ‘held over’ until the new owner disposes of it."

He concludes: “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.”