Holiday rental property owners have expressed concerns that they could face annual losses exceeding £10,000 following Jeremy Hunt’s decision to reduce the financial benefits they receive to fund his National Insurance cuts.
The Chancellor’s announcement included the discontinuation of the furnished holiday lettings (FHL) regime, which offers tax relief for expenses related to equipping over 70,000 holiday accommodations, as well as the elimination of Stamp Duty relief on multiple properties.
The estimated revenue increase of £300 million for the Treasury from this reduction has been met with criticism, with opponents cautioning that it could negatively impact areas heavily reliant on tourism by pricing individuals out of the market.
Alistair Handyside, the owner of Higher Wiscombe, a collection of upscale holiday cottages in East Devon, and the head of the Professional Association of Self-Caterers, expressed his disappointment to MailOnline. He emphasized that these allowances were hard-won benefits designed to support small businesses, and their abrupt removal without adequate explanation or future plans is disheartening.
“It is unlikely to generate the projected revenue, that’s nonsense. This move may not sway undecided voters but will alienate the owners of the 127,000 affected properties. Most significantly, it will harm the visitor economy. A decrease in holiday rentals translates to fewer patrons for local pubs and attractions. I fail to see any positives in this decision,” Handyside remarked.
Chris and Vicky Saynor, both aged 48, anticipate a loss exceeding £10,000 per year for their holiday rental business due to the discontinuation of FHL tax breaks.
“This is a severe blow for us professionals,” Mr. Saynor expressed. “With the increased Capital Gains tax relief rate, it appears to favor affluent second-home owners over small enterprises like ours that provide essential services.”
Established in 2017, the couple’s business, Bethnal and Bec, began after they purchased an older property in Hertfordshire for their family of six, which included several outbuildings that they transformed into short-term holiday rentals.
In addition to these accommodations, now leased as luxurious adult-only holiday stays, the Saynors are currently refurbishing a bungalow in Suffolk.
For the Saynors, their holiday rental venture constitutes their primary occupation—a facet they believe the government has overlooked.
“We are not merely second-home proprietors,” Mr. Saynor clarified. “Many of us are dedicated accommodation providers. However, the government’s approach treats our sector as individual property owners with surplus, unused secondary residences.”
The Saynors’ properties received council approval solely for tourism purposes.
“Our structures were outbuildings that were unsuitable for residential purposes, serving a tourism-specific function in a non-touristy locality. The council appreciated our initiative to draw visitors to the area, supporting local businesses,” Mr. Saynor elaborated.
With the elimination of mortgage interest relief, their capacity to contribute significantly to the local economy will be curtailed.
“This will substantially impact us financially as establishing and operating our holiday let necessitated substantial investments,” they explained. “We had to convert derelict stables and procure the business initially. Our mortgage alone costs around £10,000 annually, an amount we will no longer be able to offset against our taxes.”
Moreover, the absence of capital allowance, which enables holiday property owners to reclaim expenses for purchased fixtures and fittings during renovations, is expected to result in an additional £40,000 loss for the Saynors from their Suffolk property.
“We installed an advanced heating system with top environmental features, assuming that these expenses could be offset against future income,” Mr. Saynor added.
While the Saynors are confident in their business’s resilience against these cuts, they fear the necessity of raising prices, a measure they are reluctant to undertake.
“Many of us engage in this profession full-time—it is our sole occupation, not a side project,” Mr. Saynor emphasized. “We have invested significantly in developing our business to benefit the local community. These tax changes will undoubtedly impede our efforts without delivering tangible benefits.”
Budget Overview: Key Announcements by Jeremy Hunt
- Reduction of National Insurance by 2p
- Extension of child benefit eligibility to earners up to £80,000 starting from April, compared to the current threshold of £60,000
- Introduction of a new tax on vapes
- Increase in tobacco duty
- Restrictions on ‘non-dom’ tax status
- Continuation of windfall tax on North Sea oil and gas
- Clampdown on tax advantages for holiday rentals
- Extension of the 5p reduction in fuel duty
- Freeze on alcohol duties until February 2025
- Elevation of the VAT registration threshold for small businesses from £85,000 to £90,000
- Allocation of £1 million towards constructing a war memorial for Muslim individuals who served in past UK wars
- Introduction of a ‘British Isa’ providing investors with an additional £5,000 tax-free allowance to promote investments in UK assets
- Maintenance of a 1% real-terms growth in day-to-day public spending
Melanie Leech, Chief Executive of the British Property Federation, strongly criticized the recent alterations.
“The abolition of SDLT multiple dwellings relief will impact the build-to-rent sector at a critical juncture when the government should be encouraging long-term investments in professionally managed rental accommodations,” she remarked.
Holiday lets refer to properties owned in addition to one’s primary residence that are leased to short-term tenants.
Unlike buy-to-let properties, which are viewed as investments by Revenue & Customs, holiday lets are considered businesses. Consequently, owners enjoy more substantial tax advantages, including deductions for various expenses such as mortgage interest, fixtures, furnishings, cleaning, and utility costs.
Additionally, business rates, instead of council tax, are applicable to holiday lets, potentially resulting in lower expenses. However, business rates are contingent on properties being rented for a minimum of 140 days annually.
Recently, Wales heightened the minimum holiday let occupancy requirement from 70 to 182 days, subjecting holiday homeowners to increased tax liabilities if occupancy thresholds are not met.
Furthermore, the tax burden upon the sale of a holiday home is lower, with a mere 10% tax on profits under the Business Asset Disposal Relief, whereas buy-to-let landlords face capital gains tax rates of 18% or 28%, depending on their tax bracket.
Income generated from holiday lets can be directed into a pension fund, aiding owners in saving for retirement and reducing tax obligations.
Toby Tallon, Tax Partner at Evelyn Partners, a professional services and wealth management group, highlighted the potential implications of the changes.
“The alignment of tax treatment for long-term rentals with short-term lettings may diminish the appeal for buy-to-let landlords to opt for short-term rentals over long-term leases, potentially addressing housing shortages in certain regions,” Tallon stated.
He further noted that recent tax adjustments favoring FHL owners may have influenced the government’s decision to withdraw certain benefits.
“FHLs qualified for capital allowances, and the expanded expensing provisions last year augmented tax deductions available to owners,” he explained. “During the pandemic, FHLs subject to business rates became eligible for grants tailored to small businesses. The criteria for business rates eligibility over council tax were revised in 2023, while VAT-registered entities benefited from the temporary reduced VAT rate for hospitality businesses.”