Changes to the taxation of residential property

The Autumn Budget 2024 introduced a number of changes to the taxation of residential property, with some winners and some losers to the announcement.

Furnished Holiday Lettings (FHLs)

As previously announced in the Spring Budget 2024, there will be changes to furnished holiday lets (FHLs). Currently, FHLs are treated as a business for capital gains tax (CGT), meaning favourable tax reliefs could be claimed – such as a lower CGT rate of 10% under current business asset disposal relief (BADR) rules. Other CGT reliefs, such as rollover relief, can also currently be claimed. For income tax purposes, full relief is currently available for loan interest.

From April 2025, the FHL regime will be abolished, and the business will be treated as a normal rental business. This means the standard CGT rates of 18% and 24% on a disposal will apply and only basic rate tax relief for loan interest will be available when calculating taxable.

Profits and losses from an FHL are currently accounted for separately to the other rental profits and losses, such as residential or commercial property. Essentially, one loss cannot be offset against the other.

To facilitate the merger of all rental income and losses from April 2025 a set of transitional provisions have been set:

• Capital allowances – Expenditure on FHLs will no longer qualify for capital allowances under the new rules. However, capital allowances claims that have been made prior to April 2025 can continue to be claimed.
• Loss – The current rules allow for FHLs losses to only be offset against future FHL profits and not other non-FHL profits. From April 2025 FHL losses can be carried forward and offset against future profits from the taxpayer’s overall UK or overseas property business. This means that FHL loss is no longer locked against FHL profits only.
• Tax reliefs – Under the current rules, FHLs qualify for reliefs such as roll-over relief,  BADR, and gift relief where assets can pass between generations tax free. All 3 reliefs will cease from April 2025, however, existing qualifications for these reliefs, where conditions are met before the changes, will remain unaffected.
• Anti-forestalling rule – To prevent capitalising on tax advantages through early property sales by unconditional contract, an anti-forestalling measure was announced as taking effect from 6 March 2024

Stamp Duty Land Tax (SDLT)

The SDLT surcharge for purchasers of second homes and corporate purchasers of residential property, commonly referred to as the higher rate for additional dwellings (HRAD), will be increased from 3% to 5% with effect from 31 October 2024.

Companies buying residential property over £500,000 will increase from 15% to 17% on 31 October 2024 also.

As of 31 October 2024, the following rates will apply to all purchases of a second property:

• 5% up to £250,000
• 10% above £250,001 to £925,000
• 15% above £925,001 to £1.5million
• 17% on anything above £1.5million.

The Chancellor made no changes to the standard residential rates of SDLT.

Read our Price Bailey article on SDLT for more information.

This article was written by Diana Mamonova in reaction to the Autumn Budget 2024. Any updates will be added to this article accordingly. Should you have any questions regarding details within this article please use the form below to contact our experts.