Budget: Hunt abolishes preferential tax treatment of holiday lets

The Chancellor Jeremy Hunt has abolished the furnished holiday lets (FHLs) regime in his spring Budget, rebalancing the tax treatment of holiday lets compared to long-term rentals.

Toby Tallon, Tax Partner at professional services and wealth management group Evelyn Partners, comments:

“Currently, many second home-owners and landlords who use the furnished holiday letting (FHL) regime can deduct the full cost of their mortgage interest payments from their rental income and, potentially at least, pay lower capital gains tax when they sell.”

About 127,000 properties in the UK are registered under an FHL regime that will now be removed.[1]

Tallon comments: “We’re not sure yet when this will kick in, but it does seem to level the playing field with the tax treatment of long-term rentals so that for buy-to-let landlords there will be less of an incentive to opt for short-term lettings over renting to long-term residents. It’s obviously hoped this will help redress the balance in areas where there is a rental housing bottleneck for local residents and workers.

“For second home-owners who like to make extra money out of their holiday home by putting it on AirBnB while they are not using it, it will simply make this a less lucrative ‘side hustle’. If that is a make-or-break issue for them and they don’t want to be long-term private landlords, then we could see some of these properties being sold.

“Recent changes to other areas of tax have benefitted FHL owners, which may have influenced the Government in its decision to withdraw the benefits. FHLs qualified for capital allowances, so the full expensing change last year increased tax deductions available to owners. During the pandemic, FHLs that paid business rates became eligible for grants targeted at small businesses. The rules to qualify for business rates rather than council tax were tightened in 2023.[2] For those registered for VAT, they were also eligible for the temporary reduced rate of VAT for hospitality businesses.”

NOTES

[1] TaxWatch

https://www.taxwatchuk.org/furnished_holiday_lets/

[2] https://www.gov.uk/government/news/changes-to-business-rates-rules-for-self-catering-properties