Editor: The biggest headline-grabbing announcement from the Spring Budget as far as the property sector is concerned is the scrapping of the Furnished Holiday Lettings (FHL) regime. FHL provides those who hire out furnished properties as holiday lets with various tax advantages.
In recent years, the number of landlords providing furnished holiday homes has soared. This has partly been triggered by the Section 24 interest restriction rules, which prevent private landlords from obtaining full tax relief for their mortgage interest. While residential tenancies are caught by the Section 24 rules, the provision of FHLs is not and so this business model has become more attractive from a tax efficiency perspective.
The rise of Airbnb has also made it easier for landlords to market their properties as holiday lets, and since Covid the demand for UK holiday accommodation has risen. The problem is that converting properties to holiday lets is reducing housing stock and pricing residents of some popular tourist spots out of the market.
The government says scrapping the FHL regime will “make the property tax system fairer and more efficient” and “support people to live in their local area”.
Scrapping the regime will be a blow to those who provide qualifying holiday lets and will be seen by landlords as yet another attack on their businesses.
This is being accompanied by the announcement that the capital gains tax (CGT) rate on sales of residential property will drop from 28% to 24% with effect from 6 April 2024. While this initially appears to be good news, one benefit of the FHL regime was that property sales qualified for a lower 20% rate of CGT instead of the 28% rate, so this is actually an increase in rates for these businesses.
Landlords looking to offload larger portfolios may also be hit by the announced abolition of multiple dwellings relief (MDR). MDR will be scrapped from 1 June 2024 and after this any landlords looking to sell multiple properties in one go may find it harder to find willing purchasers to sell to.
Taking all these measures into account, it seems the government is set to reduce the number of private landlords in the market.
Rebecca Wilkinson, property and construction sector specialist and business tax partner, Menzies
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