Furnished holiday letting regime to be scrapped
The biggest headline grabbing announcement from the Spring Budget as far as the property sector is concerned is the scrapping of the Furnished Holiday Lettings (FHL) regime. The FHL regime has been around for years and provides individuals and companies who hire out furnished properties as holiday lets with various tax advantages.
In recent years the number of landlords providing furnished holiday homes has increased significantly. This has partly been triggered by the Section 24 interest restriction rules which prevent private landlords from obtaining full tax relief for their mortgage interest. Whilst residential tenancies are caught by the Section 24 interest restrictions rules, the provision of FHLs is not and this business model has therefore become far more attractive from a tax efficiency perspective. The rise of Airbnb has also made it a lot easier for landlords to market their properties as holiday lets and since Covid the demand for UK holiday accommodation has increased. For many landlords this has made the switch in business model an attractive option.
The problem is that converting properties to holiday lets is reducing housing stock and is pricing the residents of some popular tourist destinations out of the market. The Government believes that scrapping the FHL regime will “make the property tax system fairer and more efficient” and will “level the playing field between short-term and long-term lets and support people to live in their local area”.
Scrapping the FHL regime will be a blow to those that currently provide qualifying holiday lets and will be seen by landlords as yet another attack on their businesses. The abolition of the regime is being accompanied by the announcement that the CGT rate on sales of residential property will decrease from 28% to 24% with effect from 6 April 2024. Whilst this initially appears to be good news, one of the benefits of the FHL regime was that qualifying property sales qualified for a lower 10% rate of CGT instead of the 28% rate, so this is actually an increase in rates for these businesses.
Landlords Looking to sell their property portfolio could also be impacted
Landlords looking to offload larger property portfolios may also be impacted by the announced abolition of Multiple Dwellings Relief (MDR). MDR offered purchasers of multiple properties with relief from SDLT and often encouraged portfolio landlords to acquire multiple properties in one go. MDR will be scrapped with effect from 1 June 2024 and after this any landlords looking to sell multiple properties in one go may find it harder to find willing purchasers to sell to.
Taking all the above measure into account it appears that the Government is set to reduce the number of private landlords in the market.
Did the budget produce any positives for the property and construction sector?
Moving away from the rental sector, a welcome announcement is the Government’s intention to make full expensing applicable to expenditure on plant and machinery used for leasing. Currently, full expensing effectively allows companies to claim a 100% first year allowance on purchases of plant and machinery, but this does not apply if the assets are leased out. For commercial protection reasons, many construction groups structure themselves so that all plant and machinery is acquired by one company which then leases it to other trading companies in the group. Under the current rules full expensing does not apply to this plant and machinery, even though it is being used within a corporate group. It is hoped that legislation will be introduced soon to change this, but sadly a date has not yet been announced.