The five lost FHL tax advantages from April 2025
All five key FHL advantages were abolished: (1) BADR — CGT now 18%/24% residential rates (not 10%); (2) capital allowances on furniture/fixtures — only RDIR available for replacement items (no initial provision relief); (3) pension contribution offset — FHL profits no longer count as relevant UK earnings for annual allowance purposes; (4) Section 24 finance cost restriction — now applies to FHL; higher-rate taxpayers receive only 20% tax credit on mortgage interest; (5) rollover relief — no longer available; gains on disposal fully chargeable in year of disposal.
Transitional rules for existing capital allowance pools
Existing capital allowance pool balances at 5 April 2025 continue as writing-down allowances (18% main pool; 6% special rate pool) against future ordinary property income — the pool does not crystallise on abolition. No new capital allowances on expenditure from 6 April 2025 — only RDIR for replacement items. On disposal of a former FHL property after abolition, the normal balancing allowance/charge rules apply to the residual pool. Anti-avoidance: HMRC will challenge capital allowance claims where FHL qualifying conditions were not genuinely met.
Planning options — convert, incorporate, or dispose
Options for FHL owners post-abolition: (1) Convert to long-term residential let — removes FHL complexity; RDIR available; Section 24 applies if mortgaged; Property Portal registration (England) and PRS Ombudsman required; EPC must meet MEES E or better. (2) Review company structure — in a company, mortgage interest is fully deductible against corporation tax (25%); incorporation may trigger SDLT/LBTT/LTT and CGT — model carefully. (3) Disposal planning — gains on post-5 April 2025 disposals at 18%/24%; inter-spouse transfer CGT-free; consider holdover relief where available.
Jurisdiction differences — SDLT, LBTT, LTT, and NRCGT
FHL abolition is UK-wide for income tax/CGT. Property transaction taxes on disposal or restructuring vary: SDLT England/NI — standard residential rates; Higher Rates surcharge on company acquisition. LBTT Scotland — ADS 8%; MDR available for multiple Scottish properties. LTT Wales — HRR 5% from December 2024. Non-resident FHL owners: NRCGT at residential rates (18%/24% individual; corporation tax rate for companies); 60-day report and pay obligation; double tax treaty relief may apply. Scottish FHL converting to long-term let: PRT rules and Scottish Landlord Registration apply. Welsh FHL: Rent Smart Wales registration and occupation contract rules apply.