Chancellor Jeremy Hunt will scrap the furnished holiday lettings tax regime in April 2025, he announced in his Spring Budget on Wednesday.
Around 127,000 properties in the UK are registered under an FHL regime. which allows landlords to deduct the full cost of their mortgage interest payments from their rental income and potentially pay lower capital gains tax when they sell.
However, the Chancellor said he was concerned that the tax regime is creating a “distortion” in the housing market, resulting in a lack of properties available for long term rental by local people.
By aligning the tax treatment of holiday lets with that of other rental properties, the government may be able to raise a reported additional £300 million a year. However, it is likely to have significant ramifications for holiday let owners.
Calculations by Quilter suggest that scrapping the regime could see holiday let owners lose an average of £2,835 a year in tax based on a property worth £350,000 with an annual mortgage rate of 4.5% and £20,00 rental income.
Shaun Moore, tax and financial planning expert at Quilter, said: “For owners of holiday lets this could lead to a significant reduction in their net income. Should they lose the ability to deduct mortgage interest in full, in favour of a 20% deduction, alongside the potential increase in capital gains tax, this could make the holiday let business less financially attractive. This might result in a reduction in the number of properties available for holiday lets, which could impact local tourism.
“However, on the other hand for locals living in areas with a high concentration of holiday lets this could help them afford properties in their home towns which have gradually been pushed further and further out of reach by skyrocketing house prices out of kilter with the general house prices in the region or salaries for the area.”
Toby Tallon, tax partner at Evelyn Partners, said: “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.”
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