The Country Land and Business Association (CLA) has voiced strong opposition to the government’s decision to abolish the furnished holiday lettings (FHL) tax regime. The CLA argues that this policy change, which was confirmed earlier this week, will have detrimental effects on local economies across the UK. The association believes that removing the FHL tax benefits will negatively impact communities that rely heavily on income generated from holiday lettings.
The UK government recently published draft legislation outlining the removal of the FHL tax regime, with the changes set to take effect from April 2025. This move marks a significant shift in tax policy related to holiday rentals, which have previously enjoyed certain tax advantages under the current regime.
The CLA’s statement reflects concerns about how the policy change could reduce the financial viability of holiday lettings and, in turn, harm local businesses and services that benefit from tourism. The association urges policymakers to reconsider the impact of this decision and its potential consequences on local economies.
The proposal to eliminate the tax benefits for furnished holiday lettings was initially put forward by former Chancellor Jeremy Hunt in his spring Budget. However, the necessary legislation failed to pass before the General Election. This week, the new Labour government confirmed that despite the delays, the planned changes will still be implemented starting from next spring.
From April 2025, holiday let owners will see significant tax changes. The tax relief on loan interest income for these properties will be restricted to the basic rate, affecting the financial benefits they previously enjoyed. Additionally, the current system of capital allowances for new expenditures will be removed. Instead, a new relief will be introduced, but it will only apply to the replacement of domestic items, not new investments.
Furthermore, business capital gains tax reliefs on the sale of holiday let properties will be abolished. This means that any gains realized from disposing of these properties will no longer benefit from the previously available tax reliefs. In addition, income derived from holiday lets will be excluded from calculations for maximum pension relief, further impacting the financial advantages associated with these properties.
Despite these significant changes, there will be transitional provisions to ease the adjustment. Existing holiday lets will continue to benefit from capital allowances on expenditures already incurred prior to the new rules taking effect. Additionally, any losses generated from holiday let businesses can still be carried forward and offset against other property rental income, providing some level of relief for current property owners.
Moreover, certain reliefs will remain available under specific conditions. These include roll-over relief, business asset disposal relief, gift relief, and exemptions for disposals by companies with substantial shareholdings. These provisions aim to provide a degree of continuity for qualifying properties, ensuring that some benefits are preserved as long as the established conditions are met.
Overall, the forthcoming changes to the tax regime will strip away many of the tax advantages currently enjoyed by landlords who offer short-term holiday lets. This shift will level the playing field between those managing holiday rentals and those who rent out standard residential properties. The adjustments are set to significantly alter the financial landscape for holiday let owners, reducing the appeal of this sector compared to traditional residential lettings.
CLA president Victoria Vyvyan has highlighted that, for many farmers and landowners, diversifying into holiday lettings is not just a choice but a business necessity. In rural areas, holiday lets often provide a crucial supplementary income that supports their primary agricultural operations. Without these additional earnings, the economic viability of such enterprises could be at risk.
Vyvyan underscores the broader economic impact of the holiday let sector, noting its significant contributions to local economies. The sector injects billions into the wider economy, benefiting local shops, restaurants, and other small businesses. It also plays a role in job creation, providing employment opportunities across various regions.
The removal of the furnished holiday lets tax regime is expected to have a detrimental effect on those who help stimulate local economic growth. Vyvyan argues that the policy change will unfairly penalize individuals and businesses that are integral to their communities’ economic development, countering the positive contributions they make.
“It is not a tax loophole but a vital support mechanism that enhances the resilience and viability of many rural businesses. This system allows these businesses to invest in environmental care and food production,” Vyvyan said.
She argues that converting unused or underused properties, which may not be ideal for private rental, into high-quality holiday accommodations helps boost the local economy. This practice, according to Vyvyan, plays a key role in supporting community economic health.
“Small rural businesses should not be penalised for diversifying their activities,” Vyvyan added. “This broad approach needs a more detailed examination of the actual issues.”
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