Chancellor targets holiday lets in £300m tax crackdown

Chancellor Jeremy Hunt is expected to announce a £300 million tax crackdown on second-home owners who rent out their properties to tourists in the Budget, The Sunday Times reports.

He will scrap a series of tax breaks for landlords who use the furnished holiday lets (FHL) regime, which allows them to deduct the full cost of their mortgage interest payments from their rental income and pay lower capital gains tax when they sell.

Mr Hunt will claim that ending the FHL regime will help ease the housing crisis in popular destinations such as Cornwall and the Lake District, where local people struggle to find affordable homes as landlords convert to holiday lets to take advantage of the tax benefits.

The move is also part of the Chancellor’s bid to find the money to cut personal taxes by 2p, a pledge made by Prime Minister Rishi Sunak during the election campaign.

A source close to Mr Hunt said: “1p is affordable, 2p isn’t. We’re trying to make it, but we don’t know whether we can.”

£300 million from scrapping the FHL regime

The £300 million from scrapping the FHL regime will be added to the £500 million a year that Mr Hunt expects to raise from a new tax on vaping products.

The FHL regime requires landlords to make their properties available for at least 210 days a year and rent them out for at least 105 days a year, with each booking limited to 31 days.

According to TaxWatch, a think tank, a landlord earning £30,000 a year in rent from a property under the FHL regime can save £4,000 a year in income tax compared with a normal long-term let.

They can also reduce their capital gains tax bill by tens of thousands of pounds when they sell.

About 127,000 properties in the UK are registered under the FHL regime and Mr Hunt hopes that abolishing it will persuade landlords to sell or switch to long-term rentals, increasing the supply of housing for residents.

‘Address the chronic shortage of long-term rentals’

Ben Beadle, the chief executive of the National Residential Landlords Association, 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.”

He added: “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.”

‘Cut tax relief for landlords to give first-time buyers a boost’

Dan Wilson Craw, the deputy chief executive of Generation Rent, said: “When the government cut tax relief for landlords to give first-time buyers a boost, they failed to do the same for holiday lets.

“That means that in Britain’s holiday hotspots, first-time buyers have been getting outbid not by landlords, but holiday let operators, while tenants have lost out to tourists.”

He adds: “The shortage of homes to live in has driven people away from the areas they grew up in.

“That’s why Generation Rent and thousands of our supporters, including renters who have been evicted to make way for holiday lets, have been campaigning for these tax perks to be scrapped.

“A fairer tax system for holiday homes would be a very positive step for the government to take, and we look forward to hearing more in the Budget.”

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