A legal firm says Chancellor Jeremy Hunt has effectively slashed the value of holiday homes which are sold from April 2025 onwards.
As expected, Hunt’s Budget this week abolished the Furnished Holiday Lettings tax regime which gives extra tax reliefs for costs incurred furnishing holiday lets that aren’t available to private rentals. This was done - so the government claims - to remove the incentive for landlords to offer short-term holiday lets rather than longer-term homes.
This will take effect from April 2025 and Elizabeth Small, a tax partner at law firm Forsters, comments: “Selling your portfolio of furnished holiday lets be prepared for a price chip from the buyer, because from April 2025, if you let properties that would currently now qualify as FHLs, you will no longer be able to claim Capital Gains Tax reliefs for traders, you will not be entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures and the profits will not count as earnings for pension purposes.
“This means that the buyer is likely to want to pay less for a FHL portfolio as his post tax return will be diminished. But there is some good news for the sellers of holiday homes - as well as other additional property - because the higher rate of capital gains tax on residential property gains falls from 28 to 24 per cent. The lower rate will remain at 18 per cent, but remember the CGT annual allowance is also reducing.
“Whether these changes are sufficient to encourage FHL owners to exit the short term letting sector and either sell to home owners or to move to long term letting is yet to be seen, but it could end up with owners simply not bothering to rent out and using the property for a couple of weeks a year, meaning pubs, restaurants and shops in holiday hotspots having fewer visitors.”
Another legal firm suggests this is merely the latest example of the current government missing the point, when it comes to housing.
Angela Paul, senior associate solicitor in the residential team at Irwin Mitchell, says: “Holiday lets have been source of income generator for the UK, where people and families both living in the UK and from abroad are encouraged to visit parts of the UK for a short-term break and thereby increasing UK tourism with the goal of increasing the country’s GDPR.
“If owners are forced to sell up their holiday lets, this will have a negative impact on thriving tourist towns in the UK, surely this is not the intention of the Government?
“The Government has already clamped down on short term holiday let market by the introduction of a licensing regime by the Levelling Up and Regeneration Act. The Government’s aim is to ensure that holiday let owners provide good quality, safe accommodation which complies with minimum standards.
“Scrapping the tax breaks for holiday-let owners may not be the answer to the property shortfall crisis, particularly if removing holiday lets results in a reduction of tourism, damage to local economies and reduction in jobs.
“This may again be the Conservative Government failing to appreciate the fragile eco-system of the property market. Ultimately, punishing one set of property-owners will have a knock-on affect the other parts the market.”
Meanwhile Ben Edgar-Spier - head of regulation and policy at Sykes Holiday Cottages - comments: “Holiday let owners have been unfairly scapegoated in the guise of controlling rising house prices and availability.
“Short term rentals truly are the economic lifeblood of many parts of the UK, driving spending, providing direct employment and supporting local businesses alike. It’s therefore illogical to penalise these short-term let businesses over those with empty second homes - which contribute nothing to local economies - when you consider these benefits.
“The reality is there are potentially hundreds of factors at play when it comes to housing and rental prices. That includes empty homes, with nearly 1.4 million in England alone or 16 times the number of holiday lets, but also the government’s lack of progress on housebuilding targets. As highlighted by the CMA just last week, only 178,000 homes were completed across England last year against a target of 300,000.
“Putting pressure on holiday let owners will not solve the housing crisis but instead risks impacting the very businesses that support tourism spend and employment in communities across the country.”
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All part of the long term grand plan , boiling the frog …
Punishing the Holiday last sector won’t make landlords return to BTL where the biggest need is. It won’t me anyway. The only thing that will do that is allowing us to make at least a little bit of money. Remove section 24, extra stamp duty and mounting legislation is the only way to get us back. In the meantime more and more young and vulnerable people will be living in tents and under bridges. Is there really no-one in Government, in the opposition or in the campaign groups that can understand this simple logic??!!
Seemingly not!
Well they’ve bust our sector and before they leave they might as well wreck this one as well.
It was always insane that traditional BTL was saddled with Section 24 while holiday lets enjoyed far more traditional taxation.
One is essential, the other a luxury.
Punishing the holiday let industry does nothing to improve the supply of long term PRS properties though. How many traditional BTLs converted to holiday lets because Section 24 made them unviable as a long term let? With Section 24 still in place and much higher interest rates they're even less able to return to the long term market.
There are many different factors that the government seem to completely ignore. A lot of holiday lets either can't be let as long term homes as the planning permission stipulated they could only be used as holiday accommodation or would be awful to live in year round. Maybe with a very low EPC. The quaint fisherman's cottage that's lovely for a week in August probably wouldn't suit many people for the winter. There tends to be a lack of employment out of season in tourist areas. In season a lot of tourism jobs are low paid.
Hi Jo
Sense as usual! I have two holiday lets in Cornwall which provide accommodation for money spending visitors and jobs for many in the area. Neither was originally built for holiday letting but bacame that for not only the avoidance of section 24 and favourable tax treatment but also for the fact that there was no problem with anti social tenants or having to evict them, very little damage, usually totally accidental, and no problems with having to comply with all the mandatory, penalty potential in the paperwork involved in normal PRS letting.
I also let them on a fxed term 6 month AST in winter which accomodates those who have just moved to a new job or are on a work short term contracr etc.
This will be impossible when fixed term tenancies are banned, as how can I take bookings in Dec and Jan for the following spring if I cannot guarantee the winter tenant will leave in March or April and I have no means of evicting them.
This deprives me of 6 months income and takes a useful propeety off the market.
Once again do I sell as the new regulations make the business model unworkable?
Paul - that's a whole load of very valid points.
There are a significant number of seasonal workers who do the summer season abroad as holiday reps or the festival scene in this country and then rent a winter let somewhere and work in retail, delivery or warehouses for the Christmas run up and after Christmas sickness season. Where are they going to live if 6 month winter lets become problematic? How will the companies that rely on these staff cover the peak period? They already struggle to recruit seasonal workers. People who are permanent residents tend to want a year round job.
Well yes if you try to sell one now, it will probably be more difficult. If it was previously a family let or HMO, might be better to swap it back?
The government can't help but interfere. Tax, tax and more tax to prop up their Ponzi scheme. I decided a few years ago that I wouldn't be letting a foreign owned property anymore. Too much tax, bureaucracy and hassle from our government. I enjoy it's use instead. In some ways their loss.
The current cabinet will probably get non executive directorships and consulting fees from the hotel chain big boys and carpet baggers ltd, especially the tories who are expecting their P45’s.
A Tory government destroying successful small businesses and creating a ‘closed’ shop with more compliance costs.
I won’t be involved in residential housing, you’d have to be bonkers to consider the loss of your assets under a Labour and current Tory government.
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