Chancellor Jeremy Hunt’s recent Budget announcement, effective from April 2025, has resulted in a significant impact on the value of holiday homes. Specifically, the Furnished Holiday Lettings tax regime, providing additional tax reliefs for costs associated with furnishing holiday lets, has been abolished. This decision, as stated by the government, is aimed at eliminating incentives for landlords to focus on short-term holiday rentals at the expense of offering longer-term housing options.
The removal of the Furnished Holiday Lettings tax regime is part of a broader strategy to address the balance between short-term and longer-term housing solutions, reflecting the government’s efforts to encourage stability and availability in the rental market.
Commencing in April 2025, significant changes in tax legislation are set to impact the market value of furnished holiday lets (FHLs). Elizabeth Small, a tax partner at Forsters law firm, suggests that those looking to sell a portfolio of FHLs may encounter a decrease in buyer interest. This is due to the removal of Capital Gains Tax reliefs, the discontinuation of entitlement to plant and machinery capital allowances (including furniture, equipment, and fixtures), and the exclusion of profits from pension considerations for properties that would currently qualify as FHLs.
While this may lead to a potential reduction in post-tax returns for buyers, there is a silver lining for sellers of holiday homes and additional properties. The higher rate of capital gains tax on gains from residential properties is slated to decrease from 28 to 24 per cent. However, it’s essential to note that the lower rate will remain at 18 per cent, and concurrently, the CGT annual allowance is also undergoing a reduction.
The impact of these changes on Furnished Holiday Letting (FHL) owners’ behavior is uncertain. It remains to be seen whether these alterations will prompt FHL owners to leave the short-term letting sector, potentially selling to homeowners or transitioning to long-term letting. Alternatively, owners might opt not to rent out their properties, using them for personal purposes, leading to a potential decline in visitors to pubs, restaurants, and shops in holiday hotspots.
Another legal perspective suggests that this move is just another instance of the government’s misalignment with housing concerns. Angela Paul, a senior associate solicitor at Irwin Mitchell, highlights the significance of holiday lets as a revenue source, contributing to UK tourism by attracting both local and international visitors for short-term breaks, ultimately supporting the country’s GDP.
The prospect of forcing owners to divest their holiday lets raises concerns about its potential negative impact on the vibrant tourist towns across the UK, seemingly at odds with the government’s stated intentions. The move comes in the wake of the government’s implementation of a licensing regime through the Levelling Up and Regeneration Act, aimed at ensuring holiday let owners provide accommodations that meet high-quality and safety standards, fostering compliance with minimum requirements.
By scrapping tax breaks for holiday-let owners, the government may inadvertently exacerbate the ongoing property shortfall crisis. This is particularly true if the removal of such accommodations results in a significant reduction in tourism, leading to economic repercussions for local communities and potential job losses. Striking a balance between addressing housing concerns and supporting the vital tourism industry requires a nuanced approach that considers the broader implications on local economies and the overall well-being of these tourist-centric areas.
In light of these changes, stakeholders are urging the government to carefully assess the potential consequences and consider alternative strategies that encourage a sustainable housing market while preserving the positive contributions of holiday lets to local economies. Balancing the need for housing solutions with the economic benefits of tourism remains a complex challenge that demands thoughtful policy decisions to avoid unintended and detrimental outcomes.
“This may again be the Conservative Government failing to appreciate the fragile eco-system of the property market. Ultimately, punishing one set of property-owners will have a knock-on affect the other parts the market.”
Meanwhile Ben Edgar-Spier – head of regulation and policy at Sykes Holiday Cottages – comments: “Holiday let owners have been unfairly scapegoated in the guise of controlling rising house prices and availability.
“Short term rentals truly are the economic lifeblood of many parts of the UK, driving spending, providing direct employment and supporting local businesses alike. It’s therefore illogical to penalise these short-term let businesses over those with empty second homes – which contribute nothing to local economies – when you consider these benefits.
“The reality is there are potentially hundreds of factors at play when it comes to housing and rental prices. That includes empty homes, with nearly 1.4 million in England alone or 16 times the number of holiday lets, but also the government’s lack of progress on housebuilding targets. As highlighted by the CMA just last week, only 178,000 homes were completed across England last year against a target of 300,000.
“Putting pressure on holiday let owners will not solve the housing crisis but instead risks impacting the very businesses that support tourism spend and employment in communities across the country.”
Download NOW
4 Simple Steps To Becoming Wealthy Through Property