Budget 2024: Chancellor scraps holiday lets tax perks – is property investing still worth it?

Chancellor Jeremy Hunt unveiled plans to abolish the furnished holiday lettings tax regime in his Spring Budget. We explain what this could mean for the housing market.

suitcase on bed
(Image credit: Getty Images)

Landlords and second homeowners have been dealt a new blow after chancellor Jeremy Hunt scrapped the furnished holiday lettings (FHL) regime in his Spring Budget.

Many property investors had turned to FHL after a clampdown on buy-to-let as it still let landlords claim full mortgage interest relief and benefit from lower capital gains tax, but these perks are set to disappear.

Hunt announced in his Spring Budget today that he was concerned that the FHL system created a distortion, “meaning that there are not enough properties available for long term rental by local people.”

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To combat this, Hunt said he would abolish the FHL tax regime from April 2025, which it is believed will raise £245 million a year to help fund tax cuts such as the latest reduction in National Insurance.

Hunt also said he will scrap multiple dwellings relief, which lowered the stamp duty bill when purchasing more than one dwelling in a linked transaction, in June.

The Treasury said this would raise £385 million per year.

It comes as buy-to-let landlords and second home owners have already been hit with a scaling back of mortgage interest relief and higher mortgage rates as well as slowing rental growth.

This has prompted concerns that landlords will exit the sector.

If this were to happen, Hunt has at least cut the higher rate of Capital Gains Tax (CGT) on property from 28% to 24% from April.

What will the changes mean for the property market?

Furnished holiday lettings were becoming a viable alternative to buy-to-let.

Landlords or second home owners could list their property on platform such as Airbnb and claim full mortgage interest relief, unlike in the private residential sector. 

Investors were entitled to capital allowances for furniture and capital gains tax was reduced to 10% when the property is sold.

Hunt wants to scrap FHL tax perks to boost long-term property supply.

“This will level the playing field between short- term and long-term lets and support people to live in their local area”, the Treasury says.

But Ben Edgar-Spier, head of regulation and policy at short-term lets platform Sykes Holiday Cottages, says holiday property 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,” he says.

“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.

Edgar-Spier says 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.

Shaun Moore, tax and financial planning expert at Quilter, suggested the move will be “deeply unpopular” amongst some core Tory voters.

Analysis by the wealth manager suggested holiday let owners could lose an average of £2,835 a year in a tax, based on a property purchase price of £350,000, with an annual mortgage rate of 4.5% and £20,000 rental income.

The Treasury suggested that lowering the higher CGT rate on additional property sales from 28% to 24% will “encourage landlords and second home-owners to sell their properties, making more available for a variety of buyers including those looking to get on the housing ladder for the first time.”

The lower 18% rate will remain in place.

Christopher Springett, tax partner at Evelyn Partners, highlights that for those who are looking at property as an investment beyond their main residence, the CGT rate on residential property remains 4% higher than the rate applied to most other asset classes.

“This means that property investments do need to return more in terms of capital growth to ensure post-tax returns are competitive with, say, a portfolio of equities,” he says.

Marc Shoffman

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.