Time is running out for farmers to benefit from furnished holiday lets (FHLs) tax reliefs warns land and rural consultancy, Saffery.
“Properties that qualified as FHLs before 6 April 2025 can still benefit from various tax reliefs not available to other rental property businesses – but not for long,” says partner David Bussey.
The benefits include full relief for finance costs, capital allowances on furniture and equipment, treating FHL profits as earned income for pension contribution purposes and the potential to claim various capital gains tax (CGT) reliefs and inheritance tax (IHT) Business Property Relief (BPR), subject to extra conditions.
From 6 April 2025, the special rules for FHLs are being abolished and FHLs will be treated the same as other rental property businesses. None of the above benefits will continue to apply past this date notes David. “With these changes to the FHL rules fast approaching there are still some proactive steps that can be taken to maximise benefits.
“For example; those thinking about selling an FHL, doing so before 6 April 2025 could allow them to claim Business Asset Disposal Relief (BADR). This means CGT at 10% instead of 24%.
For those that can’t sell an FHL before 6 April 2025 but still want to benefit from BADR, they should stop renting it out as an FHL before this date. This allows a sale to be completed in three years, although the rates of CGT on gains subject to BADR will increase to 14% from 6 April 2025 and to 18% from 6 April 2026.”
Other areas to consider include;
- Checking whether there is a benefit from making an election to split the profits based on the ownership split, rather than the default 50:50.
- Consider how to use any losses. From 6 April 2025, brought forward FHL losses will be converted into normal UK or foreign property losses. This means owners can set them against profits from other property income, not just FHL profits.
- Anti-forestalling rules which prevent the use of unconditional contracts to obtain CGT reliefs. Under the pre-6 April 2025 FHL rules if the contract is entered into between 6 March 2024 and 5 April 2025 and the property is transferred after 5 April 2025. These anti-forestalling rules don’t apply if the contract wasn’t intended to avoid the FHL rule changes and was made for commercial reasons or between unconnected parties.
