Abolition of FHL tax regime and what it means for Short Let Operators.
Evergreen Property Ltd
Providing the very best in tailored property solutions in Edinburgh, specialising in long and short lets.
As part of the Spring budget announcements, Jeremy Hunt announced that the current government would abolish the FHL (Furnished Holiday Let) tax regime to bring it into line with the Long Let tax regime. The current Long Let Tax regime was announced in 2015 and rolled out from 2017. This tax change, which was very controversial at the time, and still reviled in the landlord community, is known as Section 24.
Section 24, limited Long Let Landlords’ ability to claim the interest element of mortgages as a business expense. This was rolled out and tapered from 2017 to 2020, eventually it limited the tax relief to a 20% tax credit. This is what is being introduced in one fell swoop on the short let community from April 2025.
Many Short Let operators will have moved from the Long Let regime, in order to escape the punitive Section 24. This hated tax change, many landlords and agents argue, is what led to the vast growth of Short Let (FHL) operations from 2017 – 2020. But, instead of rolling back the negative impact of Section 24, His Majesty’s Government has decided to double-down on this disaster and add the Short Let community to the Section 24 debacle.
What are the Current FHL rules and advantages?
Interest on borrowings (primarily your mortgage) is fully deductible against taxable profits.
Capital allowances for fixtures and fittings (this is a specialised area but we can put you in touch with professionals to assess your case)
Various capital gains relief, including business asset disposal, roll over reliefs.
Profits from FHL can be treated as relevant earnings for pension purposes.
As you can see, with the correct tax advice, the FHL regime has, until now, remained generous and in line with other businesses, whereas the Long Let (BTL) regime has been punished, leading – many would say – to landlords leaving the BTL sector and resulting in the current housing crisis.
Interestingly, Limited Companies within the BTL tax regime could still benefit from full deduction of interest of mortgage costs and there has a been a steady rise in company formations for this purpose. This is not always the best option for existing owners and we would strongly suggest that you speak to a relevant, qualified advisor about your personal situation. Limited companies come with limitations, extra costs and responsibilities.
Section 24, arguably has led to a reduction in available housing and an unprecedented rise of rent across the UK. Decision makers in Government, despite large petitions and observable issues in housing supply and rent inflation, have decided this is the way they want to “level the playing field”!
The Impact on your Short Let operation
Firstly, I must say those lucky enough to own their Short Let outright have nothing (apart from Licensing) to worry about due to these new announcements. Likewise, those who already operate within a limited company, can sleep well too.
However, those of you with individually or jointly owned short let property should plan for these changes. Whilst I am not regulated to give financial advice, my advice would be to ...seek advice pertinent and tailored to your own personal tax position.
In short, you will be given a tax credit of 20% for your mortgage interest, instead of being able to deduct it fully as an expense. One easy option, to help mitigate the impact would be to look at overpaying your mortgage as this will help reduce the impact but I clearly understand that this is not an option for many.
Evergreen Property’s View
Not only are we being hammered with an ill-thought out and poorly executed planning and licensing scheme in Scotland, we are not being hit with a new tax regime that has proved disastrous for tenants in the Long Let Sector. Just yesterday, Jen, my wife’s application for planning for our FHL in Haddington was declined (despite East Lothian Council previously issuing a licence several months back). There were no objections from Police, Fire, Council nor neighbours and it was said to be beneficial for the community; however, in their wisdom, the planning department stated that “The holiday let and local worker let use of the flatted property is incompatible with and harmful to the amenity of the occupants of other flatted properties used as residential dwellings within the residential building”. This was the only reason – having written 3 pages on its benefits – for refusal and flies in the face of reality where we have a good and cordial relationship with our neighbours. We will, of course, appeal and have a good chance of winning but….as you will be aware, this constant attack on landlords, the short-let industry – which brings so much to Scotland – can sometimes be exhausting.
FHL in Edinburgh is a lucrative business and despite a quiet start to the year, Denise and her team have secured some phenomenal bookings from April onwards and this Easter weekend is very busy. Our advice is to seek professional advice sooner, rather than later. I understand that incurring extra costs, with so much uncertainty surrounding licensing is never great, it should (perhaps literally) pay dividends later on.
With regards to the change in FHL regime, we would urge you to write directly to your MP – not MSP. Our MP has already been back in contact and with an Westminster election this year, we would hope MPs would have their constituents’ needs and fears at the very front of their mind and be more willing to listen that normal!
You can also sign the PASC Petition here - https://pascuk.eaction.online/FHL
As always, the Evergreen Team remain at your disposal but please be aware that we cannot advise on your own tax situation.
Have a great Easter and we look forward to a busy and prosperous Summer.
Barry and the Team
Thanks to the following sites and useful further reading:
https://www.simplybusiness.co.uk/knowledge/articles/2023/02/what-is-section-24/