Plans to abolish the Furnished Holiday Lets (FHL) regime could be delayed by at least a year from April 2025, and might never happen, according to one tax expert.

Chancellor Jeremy Hunt announced the change in his Budget Speech, to level up the differences between traditional and short-let holiday rental properties.

John Endacott (main image), head of tax at PKF Francis Clark, says MPs have been told by Financial Secretary to the Treasury, Nigel Huddleston, that any measures to achieve the government’s policy objectives will not be introduced into Finance Bill (No. 2) 2024 by amendment.

General election

“If so, this means that they will not be legislated until after the general election and not much before April 2025, if at all,” he says.

“Given the legislative timescale, my guess would be that any change in the rules looks likely to move back by at least a year from April 2025, if it ever happens at all.”.

Endacott believes it would be very easy to restrict loan interest relief without abolishing the entire FHL regime.

He adds: “The lower CGT rate on sales because of Business Asset Disposal Relief (BADR) may also be in the government’s sights.

“Again, that is pretty easy to restrict without removing the entire FHL regime.2

“The activity could cease to be a qualifying one for BADR, or BADR could be prevented from applying to residential property, or the qualification period for BADR could be extended from two years.”

Trade vs investment

Endacott says the reasoning for the FHL rules is the boundary between ‘investment activity’ and the ‘carrying on of a trade’. The Office of Tax Simplification previously recommended a statutory ‘brightline’ test to move some existing FHLs to being classed as trades, determined by a minimum number of properties, no personal usage and a minimum level of services being provided.

“If the next government does go ahead and abolish the entire FHL regime, then HM Treasury will need to solve the boundary between property investment and trading conundrum that was considered too difficult to solve in both 1983 and 2010,” he adds. “That is easier said than done.”