Approx. 3 mins read time

How the changes to Furnished Holiday Lettings (FHL) may affect your pension planning

Amongst the tax advantages enjoyed by FHLs, the ability to count profits as relevant earnings for pension purposes has been beneficial to those wanting to use this income to make larger pension contributions.

From April 2025, FHL income will no longer qualify which means that tax-advantaged pension contributions based on FHL profits will no longer be possible.

Impact on retirement planning

Owners of holiday lets need to be aware of this shift, as it decreases their capacity for pension contributions. If you own a furnished holiday home, you should consider reviewing your retirement planning strategy in light of these changes.

Tax relief on pension contributions is limited to 100% of your net relevant earnings (this generally includes, salary, net profit and currently FHLs) or to a maximum gross contribution of £3,600 per year – if you have no relevant UK earnings. If your level of pension contribution was based on your earnings, including your FHL profit then you should speak to a financial planner to see how you are affected.

If operating a property rental business through a limited company, employer pension contributions can potentially be made directly from the company. This requires careful planning and professional advice is recommended.

What our experts at Francis Clark Financial Planning suggest

In summary, while FHLs once provided significant tax benefits, the upcoming changes mean that owners will need to adapt their strategies and explore alternative avenues for tax efficiency. Please stay informed as further details emerge and consider seeking professional advice to navigate these changes effectively.

Mike Furniss
Featuring: Mike Furniss
Mike’s career in Financial Services started in 1995 after leaving the Royal Navy.  He has a huge range of experience gained from financial planning roles… read more
Charlotte Taylor-St Ruth
Charlotte is a Fellow of the Personal Finance Society and holds the Chartered Financial Planner qualification. She started working in financial services in 1998 and… read more

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