budget
[Credit: Yaopey Yong on Unsplash]

UK Chancellor scraps tax relief for holiday lets in Spring Budget

UK: As expected, UK Chancellor Jeremy Hunt has announced that the government is scrapping tax relief for holiday lets to improve the availability of long-term rentals as part of his Spring Budget 2024.

The Chancellor is abolishing the furnished holiday lettings tax regime after admitting that he was “concerned” that the current regime was creating a “distortion”, meaning that there are not enough properties for long-term rental by local people in their communities.

In addition, the Treasury and Office for Budget Responsibility [OBR] have agreed on a reduction of the higher rate of property capital gains tax for residential properties from 28 per cent to 24 per cent to increase revenues and accelerate transactions in the UK.

The preferential tax regime for holiday lets, which includes income tax reliefs for costs incurred from furnishing properties [not available to the private rental sector] and the ability to reduce capital gains tax in certain circumstances, is likely to be a nationwide measure across the UK. According to a report in this week’s The Sunday Times, the scrapping of tax reliefs on furnished holiday lets could bring in an additional £300 million a year for the Treasury.

Hunt argued that the measure would help to address the acute housing shortage being experienced in coastal areas and holiday hotspots across the UK, where landlords have been converting their long-term rental properties into holiday lets to benefit from tax perks.

It will be particularly relevant in Wales after the Welsh Government increased the number of days that a property cam be let out for each year to 182 days in order to qualify as a holiday let business.

The Spring Budget is likely to precede a general election this year as the Chancellor faces pressure to raise fresh revenue, drive growth and tackle inflation, all while facing record levels of tax burden in the UK. Hunt said that the policies would mean “more jobs, more investment and lower taxes”.

Ahead of the statement, the National Residential Landlords Association chief executive Ben Beadle said: “The Chancellor needs to address the chronic shortage of long-term rentals by attracting new landlords to the market. Squeezing holiday lets is not the answer. He should follow the advice of the Institute for Fiscal Studies and reverse punitive tax hikes which have stifled the supply of the homes renters desperately need.

“Scrapping the stamp duty levy on the purchase of additional homes would see almost 900,000 new long-term homes to rent made available over the next 10 years. This would lead to a £10 billion boost to Treasury revenue as a result of increased income and corporation tax receipts,” he added.

Meanwhile, The Professional Association of Self-Caterers UK [PASC UK] warned that “tens of thousands” of jobs could be lost across Britain’s rural and coastal communities. Original research commissioned by the association showed that the Government’s proposals would harm the traditional rural and coastal holiday cottages sector which contributes £6 billion to the English economy, costing a forecast 70,000 jobs in already hard-pressed rural and coastal communities.

Alistair Handyside, chair of PASC UK, said: “What appears to be being viewed as an ‘easy’ source of revenue for the Exchequer is in fact anything but. Increasing the tax burden on holiday properties across England’s coasts and countryside will drive scores of thousands from this traditional British sector, as the economics of providing holiday accommodation will simply no longer add up.

“This won’t just be to the detriment of those who currently own and rent accommodation – providing affordable and accessible options to families who want to holiday in the UK – it will strip from local economies tens of thousands of associated jobs which rely on the sector, such as roles in cleaning, pubs, cafes and tourist destinations.

“The Government is acting without the necessary data on the sector to create proportionate policy. For the good of the whole rural and coastal tourist economy, we implore the Chancellor to think again,” he added.

Ben Edgar-Spier, head of regulation and policy at Sykes Holiday Cottages, said: “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 [Competition and Markets Authority] 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. We’re here to support our holiday let owners and guide them through these changes, working together to continue to meet the nation’s demand for staycations,” he added.

Fiona Campbell, CEO of the Association of Scotland’s Self-Caterers [ASSC], said: “The abolition of the furnished holiday lettings regime by the UK Government is the last thing the beleaguered and hard-pressed Scottish self-catering sector needs at the present time.

“In recent years, our sector has been hit by the Scottish Government’s onerous and burdensome short-term let licensing and planning regulations so the UK Chancellor’s Budget announcement on FHL spells yet more dispiriting news for a crucial component part of the Scottish tourism industry.

“Self-catering businesses should not be seen merely as a quick revenue source by the UK Government, but instead as a vital, valued and integral part of our vibrant tourist market. The sector provides huge economic benefits for local economies and local communities and must be supported by government rather than being used as a convenient scapegoat for wider failures in housing policy.

“The ASSC maintains that the UK Government would be much better placed easing the regulatory burden on long-term tenancies as opposed to penalising the holiday let sector. Rather than scapegoating and gaslighting, policymakers need to take a proactive and holistic approach to housing challenges, not simplistic interventions which will simply hit small businesses for no material benefit,” she added.

Kate Nicholls, chief executive of UKHospitality, said that the Chancellor had “missed a real opportunity” to show that he backs hospitality and understands the “real pain that operators are enduring”, calling it a “cut-and-paste Budget that maintains the status quo which continues to act as a drag on recovery”.

In particular, Nicholls had called for a lower rate of VAT, an increase in cap business rates and a reduction in employer wage costs.

In other key news announced in the Budget:

  • The Office for Budget Responsibility [OBR] forecasts that inflation will fall below two per cent within the coming months
  • The OBR also expects that the UK economy will grow by 0.8 per cent this year and grow by a further 1.9 per cent next year [0.5 per cent higher than the autumn forecast]
  • The Chancellor has cut workers’ National Insurance by another 2p, meaning that it falls from 10 per cent to eight per cent, and it will be worth £450 a year for the average worker
  • The freeze on alcohol duty, which was due to end in August, has been extended until February 2025
  • The government remains “on track” too build one million homes across the country
  • The UK is “on track to be the world’s next Silicon Valley” with the number of technology and artificial intelligence [AI] startups being founded and that can attract investment into the UK tech industry

 

Additional industry reaction to the Budget:

Brendan Geraghty, CEO of the UKAA [UK Apartment Association], the membership association and representative body for the build-to-rent sector, said: “The Spring Budget provided the Government with a perfect opportunity to put housing front and centre, to invest in, and simplify, the planning system to deliver the new homes that the country is crying out for – but they did not take it.

“We welcome today’s announcement of £242 million of investment in Barking Riverside and Canary Wharf, which will see 8,000 homes built according to the Chancellor, many of which we hope will be delivered by the BTR sector. The Government itself estimates that 300,000 new homes are needed per year. Yet the planning system remains the biggest obstacle to new home delivery and urgent reform is required.

“We must provide homes of all tenures, to meet all needs, furnishing households with real choice regarding where and how they live. This includes delivering more BTR homes across the UK – not to replace home ownership but as a housing tenure that promotes choice and delivers additional new, good quality homes.

“Analysis by Savills suggests that up to one million additional homes will be required in the private rented sector by 2031 to meet growing demand and Build to Rent, by its inherent nature able to build at scale and at pace, can play an important part in this delivery.

“The UKAA calls on Government to encourage more local authorities to support the role of BTR homes in their communities benefiting both individual households and whole communities, with BTR schemes serving as an anchor tenant in wider regeneration plans,” he added.

Tim Wheeldon, managing director at Zeal Hotels, said: “We are pleased that the Chancellor has announced funding for manufacturing and R&D projects, including increased support for zero carbon aviation and green industry initiatives.

“”However, we fear that the money on offer is not enough to counter the underinvestment the UK is facing when trying to deliver on net zero goals. Once again, it will fall to industry to act alone on an issue which should be government’s primary concern,” he added.

Mark Buddle, head of residential development at property consultancy Bidwells, said: “The absence of measures to address the national housing emergency is astonishing. Financing pressures and an antiquated system have squeezed badly-needed housing delivery, with rents soaring across the country due to the chronically undersupplied market.

“Whether or not we provide solutions to this problem could be the defining political question of this generation. Without support for housing delivery, the UK will be unable to attract workers in areas of high productivity, which will only serve to entrench stagflation, low economic growth and increase the tax burden in the long-term,” he added.

deVere Group CEO Nigel Green said that the Budget and increasing tax burdens would make more “hard-working people across the country look for work and life opportunities overseas”.

Stay tuned for more industry reaction on STRz.

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