The abolition of the furnished holiday lettings (FHL) tax regime, confirmed earlier this week, will significantly harm local economies, according to the Country Land and Business Association (CLA).

The CLA’s statement comes in response to the UK government publishing draft legislation to remove the FHL tax regime starting April 2025. This measure, initially proposed by former Chancellor Jeremy Hunt during his spring Budget, did not pass before the General Election. However, the new Labour government has now confirmed that the change will be implemented next spring.

From April, several key changes will take effect:

• Loan interest income tax relief will be restricted to the basic rate for all holiday let owners.
• Capital allowances will no longer be available for new expenditures but will be replaced with relief for replacing domestic items.
• Business capital gains tax (CGT) reliefs on chargeable gains from disposing of property will be removed.
• Income from holiday lets will be excluded when calculating maximum pension relief.

There will be transitional arrangements, including:

• Existing holiday lets will continue to benefit from capital allowances on previously incurred expenditures.
• Losses generated from a holiday let business can be carried forward and offset against other property rental income.
• Roll-over relief, business asset disposal relief, gift relief, relief for loans to traders, and exemptions for disposals by companies with substantial shareholdings will remain available to current qualifying lets, provided certain conditions are met.

Overall, these changes will eliminate many tax advantages that short-term holiday let landlords have over those providing standard residential properties.

CLA President Victoria Vyvyan emphasizes that, for farmers and landowners, diversification into the holiday lettings market is a business necessity. She states, “The short-term rental and holiday let sector contributes billions to the wider economy, supporting local shops and restaurants and creating tens of thousands of jobs. Abolishing the furnished holiday lets regime will only punish those who help grow local economies.”

Vyvyan argues that this tax regime is not a loophole but a crucial support mechanism that strengthens the resilience and viability of many rural businesses. These businesses, in turn, invest in environmental stewardship and agricultural production. By converting unused or underutilized properties into high-quality holiday accommodations, property owners significantly contribute to the local community’s economic vitality.

“Why are small rural businesses being punished for diversifying? This sweeping approach needs far closer scrutiny of the perceived problem,” Vyvyan concludes.