In a seismic shift for property investors, Chancellor Jeremy Hunt has ruthlessly dismantled the furnished holiday lettings (FHL) regime, delivering a devastating blow to landlords and second homeowners. The cherished perks of full mortgage interest relief and reduced capital gains tax that lured investors to FHL are now set to vanish.
Hunt, in his Spring Budget announcement, expressed concern over the FHL system creating a distortion that deprives local residents of long-term rental properties. To rectify this, he declared the abolition of the FHL tax regime, effective April 2025, a move expected to generate a staggering £245 million annually, earmarked for financing tax cuts and, notably, the recent reduction in National Insurance.
In a double whammy, the Chancellor also revealed the elimination of multiple dwellings relief, designed to lower the stamp duty bill for purchases involving more than one dwelling in a linked transaction. The Treasury estimates this measure will contribute a further £385 million per year.
This decisive action adds to the woes of buy-to-let landlords and second-home owners already grappling with reduced mortgage interest relief, elevated mortgage rates, and slowing rental growth. Concerns loom large over an exodus from the sector.
Attempting to justify the moves, Hunt underscored the need to level the playing field between short-term and long-term rentals, ostensibly to bolster long-term property supply. Critics, however, argue that holiday property owners have been unfairly scapegoated, endangering the economic lifelines of numerous communities.
Ben Edgar-Spier, Head of Regulation and Policy at Sykes Holiday Cottages, dismissed the measures as scapegoating, emphasizing the vital economic role of short-term rentals in driving spending, employment, and supporting local businesses.
Tax and financial planning expert Shaun Moore of Quilter predicts the Chancellor’s actions will be “deeply unpopular” among core Tory voters. Analysis by the wealth manager suggests holiday let owners could face an average annual tax hit of £2,835, based on a property purchase price of £350,000, a 4.5% mortgage rate, and £20,000 rental income.
Despite criticism, the Treasury contends that lowering the higher Capital Gains Tax (CGT) rate on additional property sales from 28% to 24% will stimulate sales, freeing up properties for a diverse range of buyers, including first-time homeowners. However, the 18% rate will remain intact.
Christopher Springett, Tax Partner at Evelyn Partners, underscores the ongoing disparity in CGT rates, emphasizing the need for property investments to yield higher returns for competitive post-tax performance compared to other asset classes. As the dust settles, the property market braces for an uncertain future in the wake of these sweeping changes.