Are furnished holiday lets still a good idea?

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Are furnished holiday lets still a good idea?

Furnished holiday lets (FHLs) used to be the tax-savvy landlord’s dream: a nice income stream, tax breaks galore, and the chance to pass on your investment tax-free.

However, with platforms like Airbnb coming under pressure in popular tourist hotspots (thanks to a mix of housing shortages, local council crackdowns, and yes, probably a few annoyed hotel chains), FHLs have been under the spotlight. And to add to the ‘fun’ the UK government has tightened the rules on what counts as an FHL – and scrapped a few of the tasty tax benefits too.

So are furnished holiday lets still a good idea?

This was one of the questions answered on the latest edition of For Finances Sake, the regular series of podcasts on topical financial issues from Chadwick Accountants & Bookkeepers in Bidford-on-Avon.

The company’s managing director Rachael Chadwick-Harrison began by talking tax relief.

“Previously, one of the perks of FHLs was the generous treatment of expenses,” she explained. “If, for example, your boiler packed in and you replaced it with a like-for-like model, the full cost could be claimed as a repair.

“But say you fancied doing your bit for the planet and decided to install a heat pump instead. Unfortunately, that’s classed as an improvement, not a repair. Which means it’s not deductible in the same way, and you won’t see an immediate tax benefit via your Self-Assessment return.”

And the big blow, as Rachael went on to explain, is Business Property Relief.

“One of the biggest tax benefits of running an FHL was that it could qualify as a trading business, meaning your property might be eligible for Business Property Relief (BPR). In short: you could potentially pass it down to your kids without Inheritance Tax getting its claws in.

“But Chancellor Rachel Reeves put the brakes on that in the 2024 Spring Budget. The government is now phasing out BPR for furnished holiday lets from April 2025, removing one of the main incentives for running this type of business.”

So… is it still worth it?

“That depends, believes Rachael. “The right holiday let in the right area can still generate a healthy income: even after tax. But it’s no longer the passive, hands-off investment some people imagine.

“You’ve got guest enquiries to handle, bookings to manage, changeovers to organise, and cleaners to oversee. If you’re local and don’t mind rolling up your sleeves to do the changeovers yourself, you could be sitting on a little goldmine. But if you’re hoping for a quiet retirement and a hands-free income, you might want to rethink or consider outsourcing everything to a management company: which, of course, eats into your profits.”

So in summary…

“Furnished holiday lets aren’t the tax-efficient darlings they once were,” Rachael concluded. “But with the right property, in the right location, and a willingness to muck in, they can still be profitable. Just don’t go into it wearing rose-tinted specs. It’s a business, not a holiday.”

· The regular series of For Finances Sake podcasts from Chadwick’s are available on Spotify, Amazon, YouTube, Apple and Podbean. For more information, go to the website at www.chadwickaccountants.co.uk