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10:05 AM, 4th March 2024, About 2 months ago 34
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Chancellor Jeremy Hunt is expected to announce a £300 million tax crackdown on second-home owners who rent out their properties to tourists in the Budget, The Sunday Times reports.
He will scrap a series of tax breaks for landlords who use the furnished holiday lets (FHL) regime, which allows them to deduct the full cost of their mortgage interest payments from their rental income and pay lower capital gains tax when they sell.
Mr Hunt will claim that ending the FHL regime will help ease the housing crisis in popular destinations such as Cornwall and the Lake District, where local people struggle to find affordable homes as landlords convert to holiday lets to take advantage of the tax benefits.
The move is also part of the Chancellor’s bid to find the money to cut personal taxes by 2p, a pledge made by Prime Minister Rishi Sunak during the election campaign.
A source close to Mr Hunt said: “1p is affordable, 2p isn’t. We’re trying to make it, but we don’t know whether we can.”
The £300 million from scrapping the FHL regime will be added to the £500 million a year that Mr Hunt expects to raise from a new tax on vaping products.
The FHL regime requires landlords to make their properties available for at least 210 days a year and rent them out for at least 105 days a year, with each booking limited to 31 days.
According to TaxWatch, a think tank, a landlord earning £30,000 a year in rent from a property under the FHL regime can save £4,000 a year in income tax compared with a normal long-term let.
They can also reduce their capital gains tax bill by tens of thousands of pounds when they sell.
About 127,000 properties in the UK are registered under the FHL regime and Mr Hunt hopes that abolishing it will persuade landlords to sell or switch to long-term rentals, increasing the supply of housing for residents.
Ben Beadle, the chief executive of the National Residential Landlords Association, said: “The Chancellor needs to address the chronic shortage of long-term rentals by attracting new landlords to the market.
“Squeezing holiday lets is not the answer. He should follow the advice of the Institute for Fiscal Studies and reverse punitive tax hikes which have stifled the supply of the homes renters desperately need.”
He added: “Scrapping the stamp duty levy on the purchase of additional homes would see almost 900,000 new long-term homes to rent made available over the next 10 years.
“This would lead to a £10 billion boost to Treasury revenue as a result of increased income and corporation tax receipts.”
Dan Wilson Craw, the deputy chief executive of Generation Rent, said: “When the government cut tax relief for landlords to give first-time buyers a boost, they failed to do the same for holiday lets.
“That means that in Britain’s holiday hotspots, first-time buyers have been getting outbid not by landlords, but holiday let operators, while tenants have lost out to tourists.”
He adds: “The shortage of homes to live in has driven people away from the areas they grew up in.
“That’s why Generation Rent and thousands of our supporters, including renters who have been evicted to make way for holiday lets, have been campaigning for these tax perks to be scrapped.
“A fairer tax system for holiday homes would be a very positive step for the government to take, and we look forward to hearing more in the Budget.”
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The landlord vote - who gets it?
Cider Drinker
9:45 AM, 4th March 2024, About 2 months ago
I hesitantly welcome the change. It is wrong that FHLs enjoy tax (and regulation) advantages over the PRS. It’s also wrong that Ltd companies enjoy advantages over the PRS.
Of course, there are always unintended consequences.
Making FHLs less attractive to investors may see them being sold. It won’t be locals working seasonal jobs for minimum wage (or cash in hand) that snap up the properties in places like Whitby and St Ives. It’s more likely to be outsiders retiring to the coast.
I guess it will have the desired effect of ‘buying’ more votes. I’ll still look forward to election night, it should be fun.
GlanACC
9:53 AM, 4th March 2024, About 2 months ago
Reply to the comment left by Cider Drinker at 04/03/2024 - 09:45
I agree, the change should be welcome as it will equalise the pain felt by long term landlords
Reluctant Landlord
10:01 AM, 4th March 2024, About 2 months ago
I must admit, the renting sector has to be balanced. It cant be right that one part (holiday letting) is treated differently. Especially grating when some LL's switched from long term letting to short term letting because of the tax breaks. It inevitably meant that LL's with properties located in inevitably more coastal regions/Holiday let areas were in a better position to make this move....and as a consequence perhaps more long term rental were taken out of the local renting market so reducing the POSSIBILITY for local people to rent.
At the end of the day I see this as another way of the government throwing a grenade and now sitting back and watching LLs pitching against LLs.
I am not saying it was wrong for LL's to move to FHL as clearly a business decision (ones we all have to take) just that the tax rules especially should be equalised.
Frank Jennings
11:05 AM, 4th March 2024, About 2 months ago
Reply to the comment left by Reluctant Landlord at 04/03/2024 - 10:01
Well what about the tax rule of section 24 where PRS LL's do not get the mortgage tax relief, that companies get? All that will happen is the short term holiday let LL's will either sell up and take their cash elsewhere, or they will move over to become PLL' s or incorporate so as to gain the mortgage tax relief everyone else is allowed. Section 24 is the most unfair tax there is because only the small PRS LL's are affected by it, and is the main cause of the massive rent hikes we have seen in the last 4 years, across the UK.
This govenment pledged to make equal opportunities for everyone, and a level playing field. What they have done is made their mates and masters richer, and everyone else poorer, and I expect this trend will continue under new govenments. It's a race to the bottom for the poor and middle class, and a race to the top for the 0.01% super rich! Remove the Section 24 rule now, before it's too late!
Cider Drinker
11:06 AM, 4th March 2024, About 2 months ago
It wasn’t the long term better tax position nor was it the lighter regulation of FHLs that caused landlords to exit the PRS in holiday hotspots.
It was SECTION 24. Holiday let owners can offset their mortgage interest against rental income for tax purposes.
It was the huge Covid-19 payments that FHLs enjoyed. Whereas private landlords had to offer discounted rents and were not allowed to evict bad tenants.
The forthcoming changes won’t make private rentals any more attractive. If FHLs are targeted in the same way as private tenants were targeted, many of the FHLs will be sold to retirees from the cities. Locals will still not be able to buy a home of their own and there’ll be fewer jobs in hospitality. A lose-lose.
Barbaracus
11:12 AM, 4th March 2024, About 2 months ago
UK Holidays just became more expensive.
GlanACC
11:53 AM, 4th March 2024, About 2 months ago
Reply to the comment left by Frank Jennings at 04/03/2024 - 11:05
Let me tell you, incorporation is not a viable option if you only have 1 or 2 properties (and id you have no mortgage incorporation is a money loser)
Martin Roberts
11:54 AM, 4th March 2024, About 2 months ago
Reply to the comment left by Barbaracus at 04/03/2024 - 11:12
Good point, this will drive people, with their wallets, abroad.
anthony altman
12:07 PM, 4th March 2024, About 2 months ago
FHL lets do not get tax breaks or perks , they pay the same taxes as every other business in england it is a fact that buy to lets suffer additional taxes over and above any other business.
Long term lets are the victim of discrimination injustice and penal tax rates
JB
13:03 PM, 4th March 2024, About 2 months ago
Dan Wilson Craw, so you think it's a GOOD thing for landlords and therefore TENANTS to pay additional tax via section 24? Do you actually understand that tenants pay for this? I thought you were supposed to be an advocate for tenants