The government has announced that it will repeal the special tax rules relating to the commercial letting of Furnished Holiday Accommodation (FHL). The FHL rules have generally treated such letting as a trade and so a number of preferential tax rules have applied.

Income and gains from FHL will subsequently form part of the person’s UK or overseas property business and be treated in line with all other property income and gains.

There are numerous amendments but the main consequences are dealt with below.

Pensions

The definition of relevant UK earnings for pension purposes is amended to exclude income from FHL, meaning that such income will no longer enable individuals to make tax-relievable pension contributions based upon it.

Dwelling-related loans

The amount of income tax relief landlords can get on residential property finance costs is restricted to the basic rate of income tax. The restriction applies to ‘the costs of a dwelling-related loan’ and FHL is now included.

Replacement of domestic items

Property rental businesses are prohibited from claiming capital allowances but instead claim on the replacement on certain items. FHL is now included in this process (but see transitional capital allowance rules below).

Jointly held property

In respect of income arising on property held in the names of individuals who are married or civil partners and who live together, the legislation makes the assumption that the parties are entitled to the income in equal shares. These rules now apply to FHL.

The above changes generally apply to 2025/26 or accounting periods commencing on or after 1 April 2025.

Capital gains

The rules which allowed FHL to be treated as a trade for various capital gains tax reliefs are withdrawn in relation to disposals made on or after 6 April 2025 (1 April 2025 for corporation tax).

Roll-over relief on the replacement of business assets will no longer apply to acquisitions which take place on or after those dates.

In addition, the rules which allow a capital loss on loans made to traders no longer apply to claims for a loss on such a loan accruing to a person in relation to FHL on or after those dates.

Capital gains anti-forestalling: disposals under unconditional contracts

There is a rule brought in to address the situation of people attempting to ‘bank’ various CGT reliefs by using unconditional contracts. Broadly, if, between 6 March 2024 and 6 April 2025 (1 April 2025 for corporation tax), an unconditional contract is entered into but the asset is sold on or after the 1/6 April 2025, then various CGT reliefs will not be available unless:

• no purpose of entering into the contract was to avoid those capital gains changes having effect in relation to the disposal; and
• either the contract was entered into wholly for commercial reasons or the parties to the contract are not connected persons.

The claims covered include roll-over relief, relief for gifts of business assets and BADR and any claim must include a statement that the above conditions
are met.

Carry-forward of losses

If a person:

• is treated as carrying on in 2024/25 a FHL trade;
• the person has made a loss in that trade in 2024/25 or a previous tax year;
• that loss has not already been relieved; and
• the person carries on a corresponding property business in 2025/26

then that unrelieved loss is treated as if it had been made in the corresponding property business.

‘Corresponding property business’ means, in relation to a loss made in an FHL business, a UK property business (within the meaning in s264 ITTOIA 2005) carried on by that person. Similar  rules apply to overseas property.

This means that any loss carried forward from the FHL can be set against any subsequent income from a UK or overseas letting business.

Similar rules apply for corporation tax purposes.

Plant and machinery allowances

Broadly, although going forward capital allowances will not be able to be claimed by what were FHL businesses, any unused pools are carried forward and allowances given to those businesses in the future. This also means that subsequent disposals of assets on which capital allowances have been claimed will be dealt with under the capital allowances regime.

Business Asset Disposal Relief (BADR): disposals relating to pre-commencement businesses

There are a number of transitional rules brought in to allow BADR to continue in relation to transactions after 6 April 2025 e.g. where the FHL business cease pre-6 April 2025 but the sale of the property takes place within the next three years.

Download a pdf copy of this article

Few business decisions impact your tax bill more than motoring decisions — whether you’re self-employed, a partner, company director or other employee.

And with tax rules changing year on year, keeping up to date matters. From the government’s about-turn on double cab pickups, to the latest benefit in kind rates for electric cars, we cover what you need to know.

VAT and cars

For VAT purposes, HMRC defines a car as being:

• any motor vehicle of a kind normally used on public roads which has three or more wheels and either:
• is constructed or adapted mainly for carrying passengers or
• has roofed accommodation to the rear of driver’s seat that’s fitted with side windows or that’s constructed or adapted for the fitting of side windows.

With limited exceptions (such as cars bought for use primarily as taxis, to provide driving instruction or self-drive hire cars), VAT can’t usually be recovered on the purchase of a car. Should you be able to recover the VAT, and later put the car to different use, the VAT position changes, and you may need to account for output tax at the time of the change of use on the current value of the car. There are also VAT implications on the sale of a car on which you have recovered VAT.

You may be able to recover VAT on the purchase in full if the car is to be used exclusively for the purposes of your business; and it’s not available for private use. But you will need to be able to prove it! If your business leases a car, it can usually recover 50% of the VAT.

Businesses can reclaim VAT on business-related running and maintenance costs, such as repairs; and on accessories fitted after purchase, so long as they have a business use.

VAT and other vehicles

Though recovery of VAT is blocked in most cases when you buy a car, the position for other vehicles is different. VAT on lorries, vans and other commercial vehicles can be recovered if supplied to a registered business, and they are used for the purpose of the business.

The following are not considered cars for VAT purposes:

• vehicles capable of accommodating only one person or suitable for carrying 12 or more people including the driver
• caravans, ambulances and prison vans
• vehicles of not less than three tonnes unladen weight
• special purpose vehicles, such as ice cream vans, mobile shops, hearses, bullion vans, and breakdown and recovery vehicles
• vehicles with a payload of one tonne or more.

Cars, vans — and double cab pickups

What counts as a van or car matters because there can be significant tax at stake. The VAT rules have one definition: the rules for capital allowances and car benefit purposes have another, and there have been problems deciding where multi-purpose vehicles, like double cab pickups (DCPUs) fit in.

HMRC, for obvious reasons, has pushed for the car category. It had planned to tax DCPUs as cars for capital allowances and benefit in kind purposes from 1 July 2024: but a swift about-turn followed and the existing commercial vehicle treatment remained in place. 

Please note however that in the technical documents published alongside the Autumn Budget in October 2024, it was confirmed that a further u-turn had taken place and double cab pickups with a payload in excess of one tonne are in fact to be treated as cars for capital allowances and benefit in kind purposes, with effect from April 2025.  Transitional provisions have also been announced to minimise the impact on existing double cab pickups until April 2029.

Vehicles for employees

Directors and other employees, provided with a car by their employer, face a benefit in kind charge, usually referred to as ‘company’ car tax, though the rules apply to unincorporated businesses as well as companies. The charge arises unless private use is excluded, which is technically very difficult to establish. For the employer, there are Class 1A National Insurance contributions at 13.8% (2024/25) on the benefit.

The benefit hinges on the list price of the car, plus particular taxable accessories, multiplied by what is called the ‘appropriate percentage’. This is graduated by CO2 emissions. With the maximum percentage being 37%, the rules are weighted in favour of zero and low emission vehicles. Diesels attract a 4% supplement (subject to the 37% cap), unless RDE2 compliant. All-electric vehicles get particularly favourable treatment. The percentage for zero emission cars is 2% for 2024/25; 3% for 2025/26; 4% for 2026/27 and 5% for 2027/28. For hybrids, the electric range also matters. Cars with emissions between 1-50g/km, and a range of over 130 miles use the same percentage as zero emission cars.
Adjustment to the list price is made where employees contribute towards the cost of the car (up to a maximum of £5,000); for disabled drivers; and for classic cars. There is a reduction in charge where a car is provided for only part of a year.

If fuel is provided for private use of a vehicle, or costs are reimbursed, there is an additional benefit in kind charge. This does not apply to wholly electric cars.

Tax when a business acquires a car

If your business buys a car outright, tax relief on the capital cost usually comes via capital allowances. Changes to capital allowances, such as the retention of the £1 million Annual Investment Allowance (AIA) limit, and the introduction of Full Expensing for companies, have made news headlines. But in fact, neither of these provides tax relief for a business purchasing cars, and the best boost for business car purchase is likely to come via entry to the electric vehicle market while the tax incentives are still strong.
Comment: Generous rules on capital allowances apply for businesses buying new electric cars or cars with zero CO2 emissions. These qualify for 100% first year allowances until 1 April 2025, meaning the entire expenditure can be written off against taxable income in the tax period in which incurred. You may want to consider this option while it is still available.

For cars other than these, tax relief comes via writing down allowances (WDAs). WDAs are claimed by grouping items into pools, each with its own rate of capital allowances. A percentage of the value is then deducted from profits each year, with rates depending on when cars were acquired and CO2 emissions. It is a slow route to full tax relief.

The capital allowance rates applying for cars purchased from April 2021 are as follows:

Comment: Acquiring a car via a business car lease has different tax consequences from outright purchase. We should be pleased to discuss this further.

Sole traders and partnerships

Capital allowances for cars used partly for business, and partly privately, by sole traders and partnerships, are allocated to a single asset pool and WDAs depend on CO2 emissions.

The overall deduction allowed from trading profits is the business use proportion only. Some unincorporated businesses use the simplified expenses basis, instead. This involves claiming flat rate simplified deductions, rather than actual costs.

Low emission technology

Tax policy currently favours low emission vehicles, as already noted. Other tax incentives include:

• 100% first year allowances for purchase of new zero emission goods vehicles, gas refuelling stations and electric vehicle charge-points until 2025.
• Vehicle Excise Duty (VED): electric vehicles currently do not pay VED, and alternatively fuelled vehicles and hybrids pay a discounted rate until April 2025.
• Until 2025, purchase of some low emission vehicles, such as taxis, trucks and vans, qualifies for the government plug-in grant scheme, which gives a discounted purchase
  price on certain models.
• Employers may be able to use the government’s Workplace Charging Scheme to help towards buying and installing electric vehicle charge-points at eligible places of
  work: funding is available until 31 March 2025.
• Employers can provide workplace charging for electric or plug-in hybrid cars and vans used by employees without a charge to tax or NICs.
• HMRC now accepts that there is no taxable benefit where employers reimburse employees for the cost of charging company-owned, wholly electric cars, available for private use.
• The rules on optional remuneration do not apply to cars with CO2 emissions of 75g/km or less, making such cars very attractive for salary sacrifice arrangements.

Comment: Many of these tax incentives are set for change from 2025, and your business may want to factor this into planning.

Tax on acquiring a van

The tax treatment of vans can be more advantageous than the treatment of cars, and for some businesses, van purchase has an appeal for exactly this reason. Buying a van
can accelerate tax relief; vans purchased either outright or under an HP agreement are eligible for the AIA, providing 100% relief up front. The AIA is available to both incorporated and unincorporated businesses.

The taxable benefit position for vans is also different: where commuting is considered private use for a car, it is not for a van.

• Where vans are provided for employees with unrestricted private use, there is a flat rate benefit charge each year. This remains at £3,960 for 2024/25 rising to £4,020 for 2025/26, and applies to all vans, regardless of age, and (where a van is capable of emitting CO2) regardless of emissions. The position overall can compare favourably with the benefit in kind charge for use of a company car. There is a nil rate for zero emission vans.
• Where vans are provided for employees mainly for business use, and private use is restricted to commuting, the van benefit charge should not apply. What’s called
  ‘insignificant’ private use should also escape the charge: HMRC gives the example of taking rubbish to the tip perhaps twice a year. We can provide more information to help you check that use falls within the relevant conditions.
• An additional fuel charge applies where employers provide fuel for unrestricted private use. This is £757 for 2024/25, rising to £769 in 2025/26.

Working with you

The run-up to April 2025 provides a window of opportunity to use the existing tax incentives for electric vehicles, and we would be pleased to discuss what this could mean for your business. We are always here to help with any decisions on business motoring.

Download a pdf copy of this article

A shake-up to the tax rules makes this a key moment for pension planning. What does it mean for you?

This Briefing will help you take stock - whether you’re reviewing your own investment options for the future; a business owner looking for tax-efficient remuneration strategies; or an employer looking to signpost staff to advice.

Pensions basics
Pension contributions are one of the most tax-efficient ways to save. They benefit from tax relief at your marginal rate of tax, with investment income and capital gains accruing in the scheme largely free of tax. UK residents, aged under 75, can make contributions to registered pension schemes and get tax relief on the higher of £3,600 (gross) or 100% of earnings in any given tax year, subject to certain limits (below).

For tax-efficient remuneration, directors of family companies should consider the advantages of the company making employer pension contributions. If a spouse is employed, the company can also make reasonable contributions on their behalf. Provided that the overall remuneration package is justifiable, the company should be able to claim tax relief on such contributions.

Tip: investing in a pension impacts your overall tax position
Pension contributions can be good tax planning tools because of the way they mesh with other tax provisions. The interaction with the rules on tapering of the personal allowance is a good example. The taper applies if income is more than £100,000: but pension contributions may limit the impact of this.

Different types of scheme

There are two main types of pension scheme: personal pension schemes – usually used by the self-employed to make pension provision; and occupational (workplace) pension schemes.

Occupational schemes basically divide into two categories: defined benefit schemes (sometimes called final salary schemes); and defined contribution (sometimes called
money purchase) schemes. Defined benefit schemes can be particularly generous, with retirement income linked to earnings and time worked. Money purchase schemes, on the other hand, pay out in relation to the amount invested and investment performance over the years. Thanks to the government’s pensions auto-enrolment initiative, all employers are now required to provide a workplace pension scheme. The majority of these are money purchase schemes.

How tax relief is given For the self-employed, payments into personal pension schemes are paid net of basic rate tax - what’s called relief at source. The pension provider then recovers the basic rate tax from HMRC. For employees, contributions to occupational schemes are usually deducted from salary before tax is calculated. This is known as a net pay arrangement, and means tax relief is given automatically. Relief at source arrangements may, however, also be used for employees.

Tip: don’t miss out with relief at source
For higher and additional rate tax relief, and the Scottish equivalents, relief isn’t given automatically, and many taxpayers lose out here each year. Relief has to be claimed from HMRC, and can be given via adjustment to the tax code or self assessment. The same applies for additional voluntary contributions made to an occupational scheme. If not in self assessment, contact HMRC to set the process in motion.

Salary sacrifice arrangements for pensions can bring major benefits. The employee gives up the right to part of their salary in return for pension provision: the employer makes a gross contribution to the pension provider, and the employee’s gross salary is reduced accordingly. The employee gets full income tax relief through PAYE, and there is no National Insurance charge for employer or employee.

Otherwise, points to remember are that employer pension contributions are an exempt benefit for the employee. A deduction from profits is normally available for the employer.

Contributing and getting relief

There have been two main brakes on how much someone can invest in their pensions each year, and over their lifetime, and still get tax relief: the Annual Allowance and Lifetime Allowance. Spring Budget 2023 announced significant changes to both.

The Annual Allowance (AA) is the maximum amount of pension savings with tax relief that can be made each year without attracting a tax charge clawing back some of the relief. The limit applies to the total of all personal, employer and employee contributions.

• At 6 April 2023, the AA increased to £60,000 from £40,000. If contributions are more than the AA, they are potentially charged to tax on the individual as their top slice of income.

The good news is that if you don’t use all your AA in one tax year, it can be carried forward and used for up to another three tax years. This continues to be the case.

Tapered Annual Allowance High earners, with income above particular levels are subject to a tapered AA, and here the position can be complex. The taper applies where adjusted income (broadly net income plus employer pension input) is more than a particular limit: and threshold income (broadly net income less pension contributions) is more than £200,000.

• From 6 April 2023, the adjusted income limit increased to £260,000 (from £240,000). For every £2 of adjusted income above £260,000, the AA is tapered by £1, until it reaches a specified minimum.
• From 6 April 2023, the minimum taper becomes £10,000, rather than £4,000.

The Money Purchase Annual Allowance (MPAA) is a lower AA, applying where someone has flexibly accessed a defined contribution pension and continues to make contributions. It is designed to prevent pensions savings being recycled, potentially attracting tax relief more than once.

• From 6 April 2023, the MPAA increases to £10,000 from £4,000.

The Lifetime Allowance (LTA) has limited the total that could be built up in pension savings with tax relief. Until 5 April 2023, it was £1,073,100, in most cases. Until the Budget changes, where the value of the funds exceeded the LTA, a tax charge applied. It was triggered on first accessing pension benefits; reaching age 75; and in some other circumstances. ‘Excess’ amounts taken as a lump sum were taxed at 55%; ‘excess’ amounts left in the fund at 25%; and further withdrawals at the individual’s marginal rate of tax.

A higher LTA may have applied where there was LTA protection. The area is complex, but in overview, additional pension contributions have had the potential to jeopardise such protection.

• From 6 April 2023, the LTA charge has been abolished. Further legislation is being implemented from April 2024 to abolish the LTA itself.
• Excess lump sums above the LTA will be taxed at the individual’s marginal rate of income tax (rather than a 55% tax charge). This also applies for other lump sums, such as the serious ill-health lump sum.
• Rules change for the tax-free Pension Commencement Lump Sum (PCLS). From 6 April 2023, this is capped at £268,275 (25% of the LTA), except where previous protections apply.

Planning with the new rules

In the government’s words: ‘The changes to pensions tax relief limits are intended to persuade those currently considering retirement to remain in employment, and to encourage those who have already left the workforce to return.’

The Budget put a particular emphasis on workers over 50 and high earners like NHS clinicians. Certainly, these changes bring a new perspective for higher earners wanting to invest more into a pension, or those with provision already more than the LTA. Those with LTA protection may now be able to make further pension contributions without prejudicing their position. But in each case, bespoke tax and pensions advice is essential.

There are, though, repercussions for many other taxpayers. In many cases, the new AA and taper limits are worth looking at, with a view to making increased contributions. The new MPAA is also a potential game-changer. It allows someone to begin to access a pension, whilst continuing to work and still add to their pension fund. It makes it easier to think about partial retirement: and also means deciding when to make the change. Should it be as soon as possible? This currently means at
age 55 (see below). Or should it be later - and if so, when? Professional advice specific to your circumstances is necessary for all these decisions.

It should be noted, too, that the rules are still evolving. There are uncertainties over some details, for example, the income tax position of beneficiaries of a pension inherited where someone dies before the age of 75. Most notably, however, the removal of the LTA charge was particularly controversial, and a future Labour  government may reinstate it.

Drawing on Pension Benefits

Benefits can be drawn from age 55. This is what’s called normal minimum pension age. It is, however, changing, and becomes 57 from 6 April 2028. Note that this is considerably lower than State Pension age (below). Current options at age 55 include:

• taking a tax-free lump sum of 25% of fund value (to a maximum of £268,275)
• buying an annuity with the remaining fund
• income drawdown.

The money received from the annuity each year forms part of your taxable income for the year, as do any monies received from income drawdown.

State pension

Entitlement to the State Pension depends on the National Insurance record. There are different levels of payment, depending on when someone reaches State Pension age. Basic State Pension rules apply if you reached State Pension age before 6 April 2016: the ‘new State Pension’ applies after this. State pension is taxable.

The State Pension can be drawn from the official State Pension age: currently 66. The age is going up, rising to 67, for those born after April 1960, by the end of 2028. It is set to rise to 68 after this. Gov.uk offers an online tool for people to check the age that will apply to them. There is no necessity to take the State Pension as soon as you become entitled to it. If you’re still working, you may want to defer payment, meaning payments will be higher when eventually taken.

A State Pension forecast can be obtained by applying on gov.uk, by post, or phoning the Future Pension Centre. Employers may want to signpost staff in this direction. Where a forecast shows gaps in the contributions record, there could be the chance to make voluntary National Insurance contributions to put it right. This can usually be done for the past six years.

Tip: extended window
There is an extended window to make voluntary contributions for the tax years from April 2006 to April 2017 - something employers may want to flag up to staff. The deadline for these contributions is now 5 April 2025. It is particularly relevant to men born after 5 April 1951, and women born after 5 April 1953. Note, however, that voluntary contributions don’t always increase the State Pension: the position should be checked on an individual basis.

Planning for your future

Investment advice is a regulated area: and any decision on pensions is always best taken alongside a discussion of your tax position. We should be delighted to help you review the options.

Download a pdf version of this article