Chancellor Abolishes Furnished Holiday Letting in Budget 2024 Speech

Chancellor Jeremy Hunt unveiled a landmark decision with the removal of tax incentives for short-term landlords, aligning regulations for Furnished Holiday Lettings (FHL) with those governing long-term rentals, effective from April 2025.

Applying to properties rented for over 210 days annually, the changes will impact approximately 300,000 FHLs in the UK. The removal of access to Capital Gains Tax (CGT) relief, beneficial capital allowances, and exemption from finance cost restriction rules will reshape the landscape for FHL owners.

Liz Ritchie, Head of Tax at Mazars, questions the potential impact, noting short-term lets' substantial contribution to the UK economy and job market.

Tax Simplification Measure

The tax adjustments for Income Tax and CGT will come into force on 6 April 2025, while Corporation Tax and Corporation Tax on Chargeable Gains will be effective from 1 April 2025.

Christine Cairns, Tax Partner at PwC, highlights this as a tax simplification measure, estimating savings of £600 million over five years. The move aims to create a level playing field for landlords, eliminating preferential treatment for short-term furnished holiday lets.

Projected revenues indicate a substantial financial impact, with an estimated £35 million for the Treasury in 2024/25, rising to £140 million by 2026/27 and reaching £245 million by 2028/29.

Sector Setback and Future Challenges

Dean Needham, Technical Team Manager at Ryan, describes the decision as a significant setback for the sector, anticipating potential displacement of operators due to increased operational costs.

Heather Powell, Partner at Blick Rothenberg, notes that taxable profits for property owners with mortgages will rise significantly, impacting interest restrictions and eliminating the ability to claim capital allowances.

The proposed abolition of the FHL regime aligns with the broader trend of tax simplification, challenging the industry to adapt to a more uniform tax framework.

Key Changes:

• Removal of specific tax treatment for FHL.
• Abolition of exemption from finance cost restriction rules.
• Elimination of beneficial capital allowance rules.
• Withdrawal of access to reliefs from CGT.
• Inclusion of FHL income and gains in the taxpayer’s UK or overseas property business.

This move, while anticipated, marks a pivotal shift in tax policy affecting the holiday lettings sector, signalling a more unified approach to property taxation. The implications for landlords, particularly those in the short-term rental market, will become clearer as these changes take effect in the coming years.