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UK Taxes – Furnished Holiday Lettings tax regime abolished from 6th April 2025

 

 

The Chancellor of the Exchequer, Jeremy Hunt delivered his UK Spring Budget 2024 today.

 

 

As you are aware, the Furnished Holiday Letting (FHL) regime provides tax relief for property owners letting out furnished properties as short term holiday accommodations.  From 6th April 2025, however, the Chancellor is removing this tax incentive in an attempt to increase the availability of long term rental properties.

 

 

What is a Furnished Holiday Letting (FHL)?

 

According to HMRC’s guidance material, a furnished holiday let is deemed to be a furnished commercial property which is situated in the United Kingdom.

 

It must be available to let for a minimum of 210 days in the year.

 

It must be commercially let as holiday accommodation for a minimum of 105 days in the year.

 

Guests must not occupy the property for 31 days or more, unless, something unforeseen happens such as the holidaymaker has a fall or accident or the flight is delayed.

 

 

 

Currently, FHLs benefit from the following tax advantages:

 

  • There is a full deduction of interest on borrowings from FHL income.

 

  • Currently, profits from furnished holiday lettings are treated as relevant earnings. Therefore, profits generated from FHLs can be treated as earnings for the purposes of making tax advantaged pension contributions.

 

  • Capital Allowances on items such as furniture, fixtures and equipment can be claimed on your Furnished Holiday Let. You can also claim tax relief on certain refurbishment costs.

 

  • On the disposal of the FHL, Business Asset Disposal Relief (10% CGT rate), Business Asset Rollover Relief and Gift Hold-over Relief may apply.

 

  • Provided there is sufficient business activity to demonstrate a trading activity, FHL properties can qualify for Business Property Relief thereby reducing the value of the business for Inheritance Tax purposes by up to 100%.

 

 

 

So, what happens from 6th April 2025?

 

  • Mortgage Interest Relief will be given as a 20% tax credit. This will result in a reduction in tax relief from 40% for higher rate taxpayers and 45% for additional rate taxpayers.

 

  • The normal residential property CGT tax rate of 24% will apply.

 

  • Relief may be available for the replacement of domestic items in line with the regulations for long term lets.

 

  • FHL profits will no longer be treated as relevant earnings for the purposes of making pension contributions.

 

  • Properties will no longer qualify for Business Property Relief, thereby increasing Inheritance Tax liabilities.

 

 

 

What actions can you take?

 

You may wish to consider your options before the rules are abolished in April 2025.

 

 

Options include:

 

  • Continue renting your property as before but without the current tax advantages.

 

  • Sell the property with the aim of benefitting from the 10% CGT rate.

 

  • Gift the property with the aim of benefitting from Business Asset Disposal Relief and Gift Hold-over Relief.

 

  • Change your rental strategy by renting your property on a long term basis.

 

 

 

 

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Taxes on Corporate Income – Pillar Two – Ireland

 

Ireland has legislated for the Pillar Two rules with effect from:

  • 1st January 2024 for the Income Inclusion Rule and
  • 1st January 2025 for the Under Taxed Profits Rule

 

The Pillar Two rules provide that income of large groups is taxed at a minimum effective tax rate of 15% on a jurisdictional basis.

 

These rules apply where the annual global turnover of the group exceeds €750m in two of the previous four fiscal years.

 

Ireland signed up to the OECD Two Pillar agreement in October 2021.

 

The new minimum tax rate, which is effective from the 1st of January 2024, sees an increase from the previous corporate tax rate of 12.5% to 15%, for certain large companies.

 

Ireland will continue to apply the 12½% corporation tax rate for businesses outside the scope of the agreement, i.e. businesses with revenues of less than €750 million.

 

There are special rules for intermediate parent entities and partially owned parent entities as well as certain exclusions.

 

It is understood that Revenue estimates approximately 1,600 multinational entity groups with a presence in Ireland will come in scope of Pillar 2.

 

In addition, the EU Minimum Tax Directive (2022/2523) provides the option for Member States to implement a Qualified Domestic Top-up Tax (QDMTT).

 

A domestic top-up tax, introduced in Ireland from 1st January 2024, allows the Irish Exchequer to collect any top-up tax due from domestic entities before the application of IIR or UTPR top up tax.

 

The QDTT paid in Ireland is creditable against any IIR or UTPR top up tax liability arising elsewhere within the group.

 

It is important to keep in mind that IIR or UTPR top up tax may not apply in relation to domestic entities in circumstances where the domestic top-up tax has been granted Safe Harbour status by the OECD.

 

As there will be separate pay and file obligations and standalone returns for IIR, UTPR and QDTT, Revenue guidance material will be provided, in due course, in relation to all administrative requirements.

 

 

 

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.