Holiday Lets Investment gets body blow from anti-landlord Budget

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.”