From April 2025, the special tax status available to owners of FHL is expected to be abolished. This means FHLs may be taxed in the same way as standard property lets starting from 6 April 2025.
As the new rules are yet to be clarified, this is leading to considerable uncertainty for owners and operators of FHLs.
What might the tax cost be?
We have produced a comparison below detailing the current tax treatment of FHLs and compared this to standard residential lets.
FHL Tax Rules | Residential Let Tax Rules | |
Capital Allowances | 100% tax relief if available on the purchase of items, such as domestic items. | 100% tax relief is available on the purchase of items, such as domestic items. |
Capital Gains Tax (CGT) Reliefs | FHLS can qualify for tax reliefs including business asset disposal relief and roll-over relief meaning gains can usually be held over or taxed at 10%. | Gains are taxed to CGT at the residential rates of 18% or 24%. |
Finance Costs | A direct deduction for finance costs such as mortgage interest payments can be claimed against income. | Tax relief for finance costs are claimed as an income tax reducer and are capped at 20%. |
Pension Contributions | Profits from FHLs count as relevant earnings for pension purposes. | Profits are not taken into account when considering what pension input you can make. |