New Holiday Let Tax Rules: Changes Landlords Should Know

Everchanging tax rules for landlords are due for another twist as the end of the financial year fast approaches.

With all the clamour of feared tax changes that have accompanied Labour taking power, it’s easy to forget the outgoing Tory government overhauled the planning and tax treatment of short lets from April 6, 2025, and what this means for landlords.

Second homeowners and landlords with short lets, including furnished holiday lets, should review their tax status and realign their finances with the new rules.

Planning permission for new holiday lets

Under the new planning rules, landlords must:

• Apply for planning permission when switching home use to short letting. Homes already classed as short lets, such as holiday homes, do not need permission.

The aim is to stop owners from switching residential properties from primary homes to short lets that can diminish housing stock and create ‘ghost towns’ in holiday destinations.

• Landlords will be required to register short lets on a national database. The new database will show councils how many short lets they have in each neighbourhood and can guide planning decisions if they consider too many in one area are detrimental to communities.

Tax changes for short-lets

The new rules, effective April 6, 2025, scrap the current tax regime for furnished holiday lets and tax them in line with buy-to-let homes. The regulations apply to short-lets in England and the European Economic Area (EEA).

The changes mean:

• Landlords can no longer write off finance interest as a business expense. Instead, interest is removed from short-let accounts and is replaced by a 20 per cent tax credit.
• Capital allowances for short-lettings are abolished and replaced with replacement relief. The difference between the two reliefs is that landlords can recover the initial purchase cost of furniture, soft furnishings, appliances, and kitchenware under capital allowances but only the repair or replacement value under replacement relief.
• As furnished holiday lets become an investment rather than a trade from April 6, 2025, owners lose the right to claim Capital Gains Tax reliefs, like Business Asset Disposal Relief, Business Asset Rollover Relief, Gift Relief and relief for loans to traders.
• Treating business profits or salaries as relevant earnings for pensions stops from April 6, 2025. Landlords must review the level of their pension contributions as the amount available to pay into a pension with tax relief reduces.
• A new rule allows short-letting losses to be offset against rental income rather than furnished holiday let profits from April 6, 2025.
• Profits must be split equally for short-lettings with two or more owners from April 6, 2025, unless a declaration of unequal income is filed with an HMRC Form 17.