Diversification has become a key strategy for farm businesses in recent years, during a challenging period of high costs, volatile weather, political upheaval and a post-Brexit overhaul of subsidy payments.
One of the most common alternative income streams has been holiday lets, making use of vacant properties or converting unused agricultural buildings such as barns and cow sheds.
In his Spring Budget, chancellor Jeremy Hunt announced that the Furnished Holiday Lettings tax regime will be abolished from April 2025, eliminating the tax advantage for landlords who let out short-term holiday properties over those who let out residential properties to longer-term tenants.
Chris Solt, agricultural partner at Norfolk-based accountancy firm Lovewell Blake, said the changes could prompt farmers to consider generating residential revenue instead.
"This relief essentially allowed the property owners to treat these as a business rather than an investment, resulting in tax advantages, provided they meet certain criteria including availability, actual bookings and the extent to which they are furnished," he said.
"The same restrictions on mortgage interest relief which apply to regular residential rents will also apply to furnished holiday lets from 2025, which could limit the interest some owners will be able to set off against profits if they used a mortgage for purchase or conversion.
"Currently where there is joint or shared ownership, the profits of a furnished holiday let can be split at the owners’ discretion, rather than based on actual ownership percentages. This allows profits to be allocated to reward those who run the business. Rental incomes can be varied but owners will need to sign a Deed of Trust and a tax election.
"When it comes to selling a property which has been used as a furnished holiday let, there are advantageous capital gains tax reliefs available which cannot be used against regular residential lettings, such as business asset disposal relief, rollover relief and holdover relief.
"From April 2025, farming businesses may consider whether the profits currently generated from furnished holiday lets could be generated from long-term residential lettings, which require minimal owner input (compared to the bookings, changeover days, welcome packs, and so on involved with holiday lettings), without there being any difference in tax treatment."
Tax change for holiday lets could affect farm diversification decisions
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24.03.2024
Diversification has become a key strategy for farm businesses in recent years, during a challenging period of high costs, volatile weather, political upheaval and a post-Brexit overhaul of subsidy payments.
One of the most common alternative income streams has been holiday lets, making use of vacant properties or converting unused agricultural buildings such as barns and cow sheds.
In his Spring Budget, chancellor Jeremy Hunt announced that the Furnished Holiday Lettings tax regime will be abolished from April 2025, eliminating the tax advantage for landlords who let out........
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