9:30 AM, 23rd August 2024, About 3 months ago 2
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The clock is ticking for furnished holiday let landlords as government plans to abolish the favourable tax regime from April 2025 are forcing owners to reconsider their future.
On 29 July, the government unveiled draft legislation ending the Furnished Holiday Letting (FHL) tax benefits.
From 6 April 2025, landlords will lose key tax advantages.
The new rules also include interest on holiday let loans no longer being fully deductible, instead being offset by a 20% tax credit.
Capital gains tax relief on selling a holiday let will also be reduced, with potential for further increases in the Autumn Budget.
Also, capital allowances for property improvements will be withdrawn, and tax relief for pension contributions based on holiday let profits will be impacted.
Ben Handley, a tax partner at BDO, is urging landlords to consider their options, and he said: “Now that draft legislation has been published confirming the abolition of the furnished holiday letting regime, it would be sensible for anyone affected to consider their options now, plan ahead and make use of the tax reliefs currently available.
“If you usually let out your holiday home sufficiently for it to qualify as a furnished holiday let – so 105 days out of 210 days available for letting – then there are choices to be made.
“If the current arrangements suit you, there may be no need to change but it is sensible to check how much extra tax you will pay.”
He adds: “Another option is to sell the property before 5 April 2025. Although the sale may qualify for business asset disposal relief and even though the headline rate of tax is also now reduced to 24% compared to 28% in the prior tax year, the annual gains exemption has also reduced to £3,000, so it would be sensible to seek advice on your likely tax charge before you complete the transaction.
“Remember that capital gains on property need to be reported and the tax paid within 60 days of completion.”
Mr Handley says this might be the right time for holiday let landlords to pass on the property to family members.
He said: “Giving an asset to a ‘connected relative’ is treated as a disposal at market value.
“However, as a furnished holiday let property is a business asset, it may be possible to elect to ‘holdover’ any capital gain on disposal to relatives.
“Of course, if they subsequently sold it, capital gains tax would be payable on any historic gains at the prevailing rate at that time, which could be higher than the 24% rate currently.
“In addition, the gift may have inheritance tax implications, particularly if you continue to use the property without paying rent, so consider your options carefully.”
Mr Handley went on to say that landlords who want to continue letting the property should consider incorporation.
He says that while companies pay only 25% on net profits and deductions for interest on borrowings, this can be an effective route to consider.
He added: “Of course, if your holiday home does not qualify as a furnished holiday let, there is no pressing need to act but, if you were considering it anyway, the current 24% capital gains tax rate – which could go up at the Autumn Budget – may mean it is a good time to sell.”
Cider Drinker
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Sign Up14:23 PM, 23rd August 2024, About 3 months ago
Attack, attack, attack
Attack No 1
Minimum EPC Ratings introduced (but only for private rental properties). Seems social housing tenants and owner-occupiers don’t need warmer homes.
Attack No 2
George Osborne (Conservative) introduced Section 24 to the Housing Act. This means that mortgage interest, which was a legitimate business expense, can no longer be offset against rental income for tax purposes. Many small businesses couldn’t survive this attack.
Attack No 3
EICRs made compulsory (but only for private rental properties). Seems social housing tenants and owner-occupiers are expendable and not worthy of protection).
Attack No 4
As landlords switched to furnished holiday lets (where the tax rules and regulations were more reasonable), the Conservatives decided to attack FHL owners. Obviously much better than doing a U-turn and admitting that the attacks on the PRS were unfair.
We have many more attacks to look forward to with Labour happily loading their cannons. Sadly, tenants get caught in the crossfire. I hear of more and more people being evicted from their homes because landlords want to (or need to) sell up.
I look forward to the next election even though I think it is too late. The country has been handed over. One generation to go and I think the country will be renamed by its new owners.
Oliver Rees
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Sign Up19:45 PM, 24th August 2024, About 3 months ago
Reply to the comment left by Cider Drinker at 23/08/2024 - 14:23
I'm in the process of evicting all tenants who do not pay on the dot every month and regularly have arrears. I cannot risk having tenants who are not reliable in paying their rent taking advantage of new policy changes that might destroy our business. I can no longer be a 'friendly landlord' with a relationship with our tenants, as I can't deal with the emotional stress of having tenants beg and cry as I have had to deal with this in the past. So it's all going into agents hands, and all the rents are being increased by at least 20% and rather than rewarding my tenants by not increasing the rent every year I will instruct them to increase it every year. This country is a disaster, the successive governments seem to want to make 'lose-lose' policies, where the businesses lose and so do the customers. Nobody wins apart from the elites who sweep in and buy up everything that goes on the market.