As the 2025 tax year end approaches, owners of furnished holiday lets (FHL) face an important deadline as the FHL regime is set to be abolished, removing the tax advantages for landlords of short term holiday lets have over landlords that provide ordinary residential lets. As part of the abolition, the opportunity to claim capital allowances on FHLs is coming to an end.

What are Capital Allowances?

Capital allowances are a form of tax relief available to property owners on the costs of qualifying assets, such as fixtures, fittings, and equipment within a property. Typically capital allowances are only available in respect of commercial investment properties and not residential properties, unless the residential property meets the criteria for being a FHL.

For furnished holiday let owners, capital allowances could be available on items such as heating systems, lighting, power, kitchen fittings, furniture and furnishings to name a few.

These allowances can be used to reduce taxable profits by allowing owners to deduct the value of these assets from their rental income, which can significantly reduce tax bills.

Why is the 2025 deadline important?

The 2025 deadline is critical because you are only able to make a claim on qualifying assets for capital allowances before this point. After this date, the ability to claim capital allowances on furnished holiday lets will be abolished. If you own a furnished holiday let and haven’t yet made a claim, there is little time to do so.

From the draft legislation published on 29 July 2024, any allowances claimed before April 2025 can still be used beyond this point. This means that furnished holiday let owners can still realise the benefit of the allowances until they have used up the capital allowances that have been pooled. The separate identification of FHLs will no longer apply and the income from FHLs will be treated in line with rental income from residential properties.

An additional benefit to claiming before April 2025 is that from this point onwards, any excess of allowances that have been claimed can be used to offset profits generated from ordinary property income. This means that if owners of furnished holiday let’s have portfolios of buy to let properties, any allowances claimed can be used to reduce any tax liability generated from all property income alongside the continued properties from the FHL (that will be treated the same as any other residential buy to let).

 Summary

 The April 2025 deadline represents a final opportunity for furnished holiday let owners to secure significant tax relief through capital allowances. After this date, the landscape changes, and the opportunity to claim these allowances on holiday lets will disappear.

It’s essential, however, to understand the specifics. Consulting with a tax professional at Innovation 4 Business who specialises in property taxation and claiming capital allowances can provide clarity and help you navigate this transition effectively.

Reach out to one of specialist tax advisors on 0121 309 0222.