Spring Budget: UK Chancellor eliminates tax breaks for vacation rentals

UK: In the anticipated Spring Budget 2024, UK Chancellor Jeremy Hunt has revealed the government’s decision to eliminate tax relief for holiday lets. This move aims to enhance the availability of long-term rentals by addressing the imbalance caused by the current tax regime.

The Chancellor is scrapping the furnished holiday lettings tax regime due to concerns about the distortion it creates, leading to a shortage of properties available for long-term rental within local communities.

Furthermore, in collaboration with the Treasury and Office for Budget Responsibility [OBR], a reduction in the higher rate of property capital gains tax for residential properties from 28% to 24% has been agreed upon. This adjustment is designed to boost revenues and expedite property transactions across the UK.

The special tax benefits associated with holiday lets, such as income tax reliefs for furnishing costs that are not accessible to the private rental sector, are expected to be implemented nationwide. According to a report in The Sunday Times, the removal of tax reliefs on furnished holiday lets could generate an additional £300 million annually for the Treasury.

Hunt emphasized that this measure will help alleviate the severe housing shortage prevalent in coastal areas and holiday destinations across the UK. Landlords have been converting long-term rental properties into holiday lets to take advantage of tax incentives, contributing to the housing crisis.

This change is particularly significant in Wales following the Welsh Government’s extension of the allowable number of days for property letting to 182 days per year to qualify as a holiday let business.

The upcoming general election adds pressure on the Chancellor to increase revenue, stimulate growth, and combat inflation amidst record levels of tax burden in the UK. Hunt stated that these policies aim to generate more jobs, attract investments, and lower taxes.

Prior to the announcement, the chief executive of the National Residential Landlords Association, Ben Beadle, highlighted the urgent need to attract new landlords to address the chronic shortage of long-term rentals. He suggested reversing punitive tax hikes to encourage the supply of essential rental properties.

On the other hand, The Professional Association of Self-Caterers UK [PASC UK] expressed concerns about potential job losses in rural and coastal communities due to the government’s proposals. They emphasized the negative impact on traditional holiday cottages, which play a vital role in the local economy.

Various industry experts, including Ben Edgar-Spier from Sykes Holiday Cottages and Kate Nicholls from UKHospitality, criticized the Budget for overlooking key issues such as VAT rates, business rates, and wage costs that affect the hospitality sector.

The Office for Budget Responsibility [OBR] projects a decrease in inflation, a modest economic growth forecast for the UK, and a reduction in workers’ National Insurance. Additionally, the freeze on alcohol duty has been extended, and the government remains committed to building one million homes nationwide.

The Budget also aims to position the UK as a leading hub for technology and artificial intelligence startups, attracting investments into the tech industry.

Further Industry Responses to the Budget:

Brendan Geraghty, CEO of the UK Apartment Association [UKAA], emphasized the need for housing reforms to meet the growing demand for new homes. He called for simplifying the planning system to facilitate the construction of additional homes, especially in the build-to-rent sector.

Tim Wheeldon from Zeal Hotels welcomed the funding for manufacturing and green initiatives but expressed concerns about the insufficient support for achieving net-zero goals.

Mark Buddle from Bidwells criticized the lack of measures to address the housing crisis, stressing the importance of supporting housing delivery to prevent economic stagnation and high tax burdens in the long term.

deVere Group CEO Nigel Green warned that the Budget’s tax increases could drive skilled workers to seek opportunities abroad.