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Abolition of the Furnished Holiday Lettings (FHL) Tax Regime

ASSC and PASC UK: Working Together to Support Members

The Association of Scotland’s Self-Caterers (ASSC) is working in partnership with the Professional Association of Self-Caterers UK (PASC UK) to address the implications of the Finance Bill and the abolition of the Furnished Holiday Lettings (FHL) tax regime. We are committed to keeping our members informed and will provide updates as soon as they become available.

The attached briefing note includes:
  • The potential impact of the FHL tax regime abolition.
  • The argument for a 12-month transition period to allow businesses time to adapt.
  • Comparisons with previous tax changes for buy-to-let landlords and the challenges faced by FHL operators.
  • The broader economic contribution of traditional holiday lets and the risks posed by excessive regulation.

We encourage members to review the briefing note and stay engaged as we continue to advocate for a fairer approach.

We have provided key previous ASSC updates relating to the abolition of the FHL Tax Regime in the links below.

Update: 3rd February 2025

Commentary on the Finance Bill Committee consideration of the repeal of the Furnished Holiday Letting rules on 28 January 2025

John Endecott, Partner at Francis Clark, who we have been working closely with throughout the challenges of FHL abolition, has provided a helpful summary of where things stand.

The Furnished Holiday Letting (FHL) repeal provisions were considered by the Finance Bill Committee on 28 January. This is the part of the Parliamentary legislative process where a tax measure is subject to the most scrutiny, although it doesn’t tend to get much publicity. In the last few years, the level of scrutiny has declined, and the consideration of issues tends to be perfunctory. That was certainly the case in the Finance Bill discussion on the repeal of the FHL rules.

A U-turn is always unlikely. What one is looking for in the Minister’s statement is an element of explanation or a comment that helps understanding. Fifty odd years’ ago, that was the norm. as a result, the courts started to refer to the debates in their deliberation on unclear legislation and consequently, the civil servants made the content of the debates more anodyne.

As ever, in low expectation, I get to look at what was said. There is the inevitable amount of point scoring. The key request from Gareth Davies MP, the shadow minister, was to ask:

“the Minister to provide confirmation on the three points I listed, and to provide an assurance that the guidance from His Majesty’s Revenue and Customs is sufficiently clear on those points that those affected are aware of the full implications of the changes.

Finally, in the case of joint ownership, the Chartered Institute of Taxation is calling for an administrative easement to allow declarations to be backdated. Has the Minister considered the possibility of such an easement being implemented?”

Notice that the focus is on asking for more guidance and an “administrative easement”. That is, trying to make everyone’s life easier.

In response, the Minister said regarding the boundary between rental income and trading that:

“There are established principles that underline what is trading and what is income from property. The bright-line tests that have been put forward distort those principles rather than clarify them. Whether activity is income from property depends on the nature of the activity undertaken, and specifically how the profit is derived. If the profit is derived from the exploitation of land, the income is taxable as property income. The furnished holiday let rules provided for specific reliefs, but for tax purposes it has always been property income, not trading income. Categorising some property income arbitrarily as trading would give more reliefs than FHLs previously had.

“The shadow minister also raised concerns about how the repeal of the FHL rules will apply practically to landlords and how that may affect them. I reassure him that HMRC has already published guidance on the changes and will be publishing more ahead of April, when the changes come into effect. …

“On the shadow Minister’s other points in relation to business asset disposal relief and roll-over relief, we have considered the impacts of the changes on those two reliefs. It will depend on an individual’s personal circumstances, but broadly each person would need to dispose of the whole or part of an FHL business, or dispose of assets that were used for the purposes of an FHL business that has ceased, before April 2025. We have been fair in our approach not to restrict relief where someone has had an FHL before repeal. 

“… We have considered the impact of the changes on married couples and civil partners. The removal of the FHL rules will mean that a married couple is subject to the same rules as other landlords. For married couples, income is assumed to be split 50:50 unless a declaration is made to split the income in a different proportion, which must be the same as the proportion of ownership between the couple. If they want to change the proportions, married couples will have to make an election for joint ownership arrangements as per the usual process. There will be a deadline of April for married couples to adjust to the changes as we cannot backdate such elections. That was already set out online following the consultation on the draft legislation. Further online guidance will be available.”

In the end, nothing much that is new has been said. The position remains as outlined in my Taxation article of 12 December 2024. I note in two places (which I’ve underlined) that further HMRC guidance will be issued. If I was a betting man, I’d suggest that that will be on 26 March (the date of the Spring Statement). We can hope for something before, but I wouldn’t hold your breath.

There is still some horse-trading going on as regards the Finance Bill provisions, and tax experts and associations have done much to point out the failings of this legislation, but there appears to be a reluctance by the government to give any meaningful further concessions beyond those that have already been achieved.

It didn’t seem too much to hope for a bit more delay to allow for more adjustment and the current form 17 process on joint ownership is clunky to say the least. Some practical changes to that process would be nice but rather than try and improve things for everyone, the tone is very much that FHL owners will be “subject to the same rules as other landlords”, as if that request was special pleading.

There is still report stage to come on the Finance Bill, but any substantive concession is looking unlikely.

John Endacott, PKF Francis Clark, 3 February 2025.

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