Budget announcement will affect tax treatment of furnished holiday lettings

25.03.2024
Chris Solt
Agriculture
Chris Solt, Agriculture Partner for Lovewell Blake

Diversification has been key for farming businesses to remain sustainable; having a number of different income streams on the farm has helped many businesses navigate through external factors and changes in farm subsidy regimes.

Chris Solt, Agriculture Partner for Lovewell Blake

One of the most common additional income streams has been furnished holiday lets.  With reduced on-farm labour requirements, the ability to use vacant properties - and converted unused agricultural buildings such as barns and cow sheds - as holiday cottages brings additional income into not just the farm but also the surrounding community.  Even when existing buildings are not available for rent or conversion, log cabins or yurts provide a solution.

The Spring Budget saw the abolition of Furnished Holiday Lettings Relief from April 2025.  This relief essentially allowed the owners to treat these as a business rather than an investment, resulting in tax advantages, provided they meet certain criteria including availability, actual bookings and the extent to which they are furnished.

For example, capital allowances can be claimed on qualifying furniture, fixtures and equipment, as well as ‘integral features’ such as plumbing or electrical systems.

The same restrictions on mortgage interest relief which apply to regular residential rents will also apply to furnished holiday lets from 2025, which could limit the interest some owners will be able to set off against profits if they used a mortgage for purchase or conversion.

Currently where there is joint or shared ownership, the profits of a furnished holiday let can be split at the owners’ discretion, rather than based on actual ownership percentages.  This allows profits to be allocated to reward those who run the business.  Rental incomes can be varied but owners will need to sign a Deed of Trust and a tax election.

When it comes to selling a property which has been used as a furnished holiday let, there are advantageous capital gains tax reliefs available which cannot be used against regular residential lettings, such as business asset disposal relief, rollover relief and holdover relief.

From April 2025, farming businesses may consider whether the profits currently generated from furnished holiday lets could be generated from long-term residential lettings, which require minimal owner input (compared to the bookings, changeover days, welcome packs, and so on involved with holiday lettings), without there being any difference in tax treatment.

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