A leading Cumbrian accountants has issued an urgent warning to owners of holiday homes about significant tax changes.
From April 2025, tax advantages currently enjoyed by furnished holiday lets owners will be removed.
These changes will result in the properties being taxed similarly to traditional residential property rentals.
Graham Lamont, CEO of Lamont Pridmore, said: “The abolition of the furnished holiday let tax regime marks a significant shift for holiday home owners.
“We strongly advise property owners to seek professional guidance to navigate these changes effectively. Planning ahead will be crucial to mitigate potential tax liabilities.”
The benefits set to be lost include capital allowances, where furnished holiday let owners can currently claim up to £1 million in capital expenditure through the Annual Investment Allowance (AIA), and potential eligibility for Business Asset Disposal Relief, which offers a lower tax rate compared to Capital Gains Tax (CGT).
Expenses such as mortgage interest, which can be fully deducted from rental income, will be limited to the basic rate of Income Tax.
Additionally, income from furnished holiday lets, currently classified as earned income and qualifying for relief at the owner’s highest rate of Income Tax, will no longer count towards UK earnings when determining the maximum pension relief.
Furnished holiday let properties must meet specific criteria to qualify under the current regime, including being based in the UK or European Economic Area (EEA), and actively rented out to generate profit.
They must also be available for rental for at least 210 days annually, commercially let as a furnished holiday lets for at least 105 days per year, and not exceeding 155 days per year for long-term rentals over 31 consecutive days.
Although these changes were announced by the previous Chancellor, Jeremy Hunt, the new Labour Government has already confirmed that it intends to proceed with these changes.
Given the substantial changes and potential tax implications, owners should consider their options before the new rules come into effect.
This might involve selling the property and benefiting from the current lower 10 per cent Capital Gains Tax rate now, Lamont Pridmore said
