CLA warns of the economic impact of abolishing FHL tax relief

The Country Land and Business Association (CLA) has criticised the government’s decision to abolish the Furnished Holiday Lettings (FHL) tax regime, arguing it will stifle economic growth, particularly in rural areas.

The move follows the publication of draft legislation outlining the removal of the FHL scheme from April 2025.

Previously announced by then-Chancellor Jeremy Hunt in the Spring Budget, the FHL tax regime currently offers benefits to properties rented out for holidays for at least 210 days a year, with a minimum occupancy of half that period.

The government estimates scrapping the relief will save the Treasury approximately £245 million annually by 2028-29.

‘Diversification into the holiday lettings market’

The CLA’s president, Victoria Vyvyan, said: “For many farmers and landowners, diversification into the holiday lettings market is a business necessity.

“The short-term rental and holiday let sector contributes billions to the wider economy, supporting local shops and restaurants and creating tens of thousands of jobs.

“Abolishing the Furnished Holiday Lets regime will only punish people who are helping to grow local economies.”

She adds: “It is far from a tax loophole, providing a crucial support mechanism, strengthening the resilience and viability of many rural businesses that in turn enables them to invest in their work looking after the environment and feeding the nation.

“By converting unused or underutilised properties, that may not be suitable as homes in the private rented sector, into high-quality holiday accommodations, property owners contribute to the local community’s economic vitality.”

FHL tax regime abolition

The government’s policy paper outlines the rationale behind the FHL tax regime abolition.

Implemented in 1984, the scheme offered more favourable tax treatment for short-term holiday lets compared to standard residential properties.

The proposed change aims to create a fairer system by removing these tax advantages for FHL landlords.

The abolished regime previously applied to individuals, corporations and trusts operating or selling FHL properties.

The government maintains that this policy promotes fairness by aligning the tax rules for FHLs with those for other property businesses.

Tax advantages for FHL landlords

The move removes the previously enjoyed tax advantages for FHL landlords in four key areas:

• Loan interest will be restricted to the basic income tax rate
• Capital allowances for new expenditure and replacement of domestic items will be removed
• Access to reliefs from taxes on chargeable gains for trading business assets will be withdrawn
• This income will no longer be included when calculating maximum pension relief.

Following the repeal, former FHL properties will be considered part of the person’s UK or overseas property business and subject to the same rules as non-furnished holiday let property businesses.

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