Holiday lets contribute to the economy, create jobs, and support tourism. The Government absolutely backs small businesses, including responsible short-term holiday letting, which I recognise brings significant investment to local communities through the important role they play in the visitor economy. At the same time, it is important to acknowledge the impact that large numbers of holiday lets concentrated in an area can have on local communities. It is also important not to disadvantage long-term residential tenants.
The Government has decided to abolish the Furnished Holiday Lettings (FHL) tax regime from April 2025, giving FHL landlords time to adjust to these changes. This will eliminate the tax advantage for landlords who let short-term furnished holiday properties over those who let residential properties to longer-term tenants. This does not stop people from conducting short-term lets but rather ensures that the system is equal for those letting long-term or short-term. Currently, 137,000 FHL owners benefit from more gorgeous tax reliefs than 2.7 million other residential landlords. It is not disadvantaging FHL landlords compared to other landlords, but putting short term lets on the same footing as long term lets in terms of tax treatment.
The Government understands the disappointment of some owners and operators at this decision; however, it will simply fix a distortion that incentivised the provision of short-term holiday lets at the expense of local people’s access to housing. The number of FHL businesses has grown by a third between 2015/16 - 2021/22. The tourism sector depends on vibrant communities of long-term residents to welcome visitors and staff the accommodation, restaurants, and attractions which are the bedrock of the industry.
These changes will only apply to personal FHL business, as incorporated FHL businesses face the same tax regime as rental companies and will not be affected.
It is important to emphasise that tax reliefs will still be available to individuals providing furnished holiday letting services, including mortgage interest relief at 20% and relief for the replacement of domestic items.
The change in the tax regime for FHL also raises revenue estimated at £245m in 2028-29 for our vital public services at a time when the fiscal position is tight.
This announcement in the Spring Budget 2024 follows announcements made by the Department for Levelling Up, Housing and Communities and the Department for Culture, Media and Sport that propose a new planning ‘use class’ for short-term lets not used as a sole or main home and introduce a mandatory national register for short-term lets.
In order to boost the availability of housing, the Government has also cut Capital Gains Tax on residential properties. This aims to encourage landlords and second home-owners to sell their properties, making more available for a variety of buyers including those looking to get on the housing ladder. Therefore, the Government believes it is necessary to level the playing field between long-term and short-term lets and increase availability for those looking to move in as tenants or homeowners.
