Furnished holiday let tax benefits to be abolished by the new government
With the dissolution of Parliament following the snap election decision by Prime Minister Rishi Sunak, the furnished holiday let tax benefits which were due to be scrapped did not come to fruition.
Whilst first announced at Spring Budget 2024, as no draft legislation was published before the previous parliament session ended, it will now be up to the current parliament to decide if they want to bring the proposal forward again.
Prior to the dissolution of parliament, a debate took place on the subject in Westminster Hall on Wednesday 1 May 2024. This discussion focused on the abolishment of the Furnished Holiday Regime. Led by Peter Aldous MP, this debate failed to provide any further insight into the progress of the proposal.
The debate did indicate that it appears that the then Treasury’s stance was not to consider objections by MPs, nor to allow a consultation on the matter.
The labour government has now confirmed (on 29 July 2024) this it will continue with plans to remove he tax benefits of furnished holiday lets. This will take effect from April 2025, providing a window of opportunity for property investors to plan.
Furnished holiday let announcement in Spring Budget 2024
At the Spring Budget 2024, The then Chancellor, Jeremy Hunt announced the FHL regime would be scrapped. He commented that the current regime was “creating a distortion” in the market where the result of this is that local communities are struggling to find long-term properties to rent.
Broadly welcomed in parliament, news publications had mixed views. Whilst some welcomed the proposal, others expressed concerns to tourism in certain communities.
As the measure was not included in the Finance Bill, HMRC has not published an impact assessment of the measure.
In response to some criticism of the proposal, the Chancellor at the time commented that he wanted to equalise the tax treatment for landlords regardless of the type of rental property. He elaborated that the Government’s proposal was significantly simpler than what the OTS had suggested.
The introduction of tax benefits for furnished holiday lets
The furnished holiday lettings regime tax rules were introduced in 1982-83. This was to provide clarity over whether operating a short-term holiday rental business should be treated as a trade or investment for tax purposes.
This followed several cases with differing outcomes on this subject and the subsequent uncertainty for those involved in these businesses. The emerging legislation did not treat the activity as a trade. Instead, it directed that income from Furnished Holiday Lettings was to be taxed as trading income instead of investment income.
This was important at the time as investment income attracted an additional tax surcharge.
Under the legislation as first introduced, the day count requirements were less than currently (70 days of actual letting and 140 days of availability) and the range of tax reliefs was greater. This included losses from a furnished holiday let, which could be set off against general income (sideways loss relief). The property had to be situated in the UK.
The future for the tax treatment of furnished holiday lets
As now confirmed, the government is to legislate to scrap the tax benefits provided to furnished holiday lets form April 2025.
This is as expected. In 2009, the Labour government first proposed to abolish the Furnished Holiday Lettings regime. The provision for this was originally included in the Finance Bill 2009-10.
However, because the 2010 election was called in the spring of 2010, the proposal was dropped from the Bill. The incoming Conservative-Lib Dem coalition did not proceed with the abolition of the regime.
The Government did go on to change certain elements of the eligibility criteria to qualify as a FHL. This included increasing the occupancy criteria days).
Tax advice for FHLs and property investments
As the regime is not being abolished until April 2025, there is a short period of time for owners to consider their tax options.
Whether a Furnished Holiday Let is held as an individual investment, or you own several, tax planning now can provide a clearer picture of the future.
If you hold other investments, such as Buy to Let properties, a holistic approach to your portfolio may be beneficial. At Alexander & Co we can review your situation and advise on what is likely to be the best tax solution.
Contact Alexander & Co
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