HM Revenue and Customs has launched almost 2,000 investigations into landlords letting properties through Airbnb and other short let platforms.
According to The Daily Telegraph, which submitted a Freedom of Information request to HMRC, the number of investigations opened in the 2023-24 financial year is nearly five times higher than the previous year, 2022-23. This is a significant increase from the 95 inquiries conducted in 2021-22, making it 20 times the number from just two years ago. The surge in investigations highlights the government’s increased focus on ensuring that landlords comply with tax regulations amid the growing popularity of short-term rentals. This crackdown aims to address tax evasion and ensure fair contributions from all property owners engaged in short-term letting.
HMRC is actively pursuing homeowners who fail to declare rental income from holiday lets. This move comes as the short-term property rental market continues to grow rapidly, raising concerns about tax compliance.
An HMRC spokesman explained to the Telegraph, “The short-term property rental market is growing fast, and it’s our role to ensure owners pay the right tax, creating a level playing field for all. We have dedicated specific resources to opening enquiries where there is evidence that those renting out holiday lets have not declared income.” This statement highlights HMRC’s commitment to ensuring that all income from holiday lets is properly reported and taxed, thereby maintaining fairness within the rental market.
In a significant policy change, Chancellor Jeremy Hunt’s Budget in March abolished the Furnished Holiday Lettings tax regime. This regime had previously offered additional tax reliefs for costs incurred in furnishing holiday lets, benefits that were not extended to private rentals. The abolition of these tax reliefs signifies a shift towards a more uniform tax treatment of rental properties, aiming to eliminate any preferential tax advantages previously enjoyed by holiday let landlords.
The crackdown by HMRC and the policy changes introduced in the Budget underscore the government’s broader efforts to enhance tax compliance and ensure that all rental income is fairly taxed. For landlords operating in the holiday let market, these developments serve as a reminder of the importance of accurate income reporting and adherence to tax regulations.
The government claims that the abolition of the Furnished Holiday Lettings (FHL) tax regime aims to eliminate the incentive for landlords to prioritize short-term holiday lets over longer-term rental properties. Effective from April 2025, this policy change will have significant implications for landlords operating in the holiday let market.
According to Elizabeth Small, a tax partner at law firm Forsters, landlords considering selling their portfolio of furnished holiday lets should be prepared for a potential decrease in their property’s value. She explains, “From April 2025, if you let properties that would currently qualify as FHLs, you will no longer be able to claim Capital Gains Tax reliefs for traders. Additionally, you will not be entitled to plant and machinery capital allowances for items such as furniture, equipment, and fixtures. Furthermore, the profits generated from these properties will not count as earnings for pension purposes.”
“This means that the buyer is likely to want to pay less for a FHL portfolio as his post tax return will be diminished. But there is some good news for the sellers of holiday homes – as well as other additional property – because the higher rate of capital gains tax on residential property gains falls from 28 to 24 per cent. The lower rate will remain at 18 per cent, but remember the CGT annual allowance is also reducing.
“Whether these changes are sufficient to encourage FHL owners to exit the short term letting sector and either sell to home owners or to move to long term letting is yet to be seen, but it could end up with owners simply not bothering to rent out and using the property for a couple of weeks a year, meaning pubs, restaurants and shops in holiday hotspots having fewer visitors.”
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