"Cutting property CGT rates will be welcomed in some quarters. But elsewhere, after years of tightening regulation in the buy-to-let market, the Government has indeed now moved to put the squeeze on holiday lets."
- Paresh Raja, CEO of Market Financial Solutions
The government has announced that it will abolish the furnished holiday lettings (FHL) regime, which gives extra tax reliefs for costs incurred furnishing holiday lets, and is also removing multiple dwellings relief.
FHL reductions currently apply to properties which are available for holiday letting for at least 210 days a year, and which are let for at least half that time.
Holiday let landlords can claim capital gains tax reliefs for traders, are eligible for plant and machinery capital allowances for items such as furniture, equipment and fixtures, and the profits count as earnings for pension purposes.
The FHL regime will be abolished from April 2025.
During his Budget speech, chancellor Jeremy Hunt also confirmed that the government will abolish multiple dwellings relief, a stamp duty relief for people buying more than one property, from 1st June 2024. The government says the scheme shows "no evidence of promoting investment in the private rented sector".
Scrapping the holiday let reliefs are expected to save the Treasury around £245m a year, while the removal of multiple dwellings relief will generate £385 million a year.
In addition, the government will reduce the higher rate of property capital gains tax from 28% to 24%, which Hunt said will increase revenues by encouraging more transactions.
Rod Lockhart, CEO of LendInvest, said the CGT reduction will "support the buy-to-let market by lowering exit costs for investors and improving their returns", adding that the change "could help to drive an increase in the supply of buy-to-let properties on the market, providing much needed stock".
Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), said: “The Chancellor's announcement that capital gains tax will be reduced from 28% to 24% for higher or additional rate taxpayers selling a residential property is little more than a sop to those landlords forced to exit the private rental sector by tough economic conditions and a punitive taxation system. And not even much of a sop, given that the tax-free allowance for CGT is set to decrease from £6,000 to £3,000 in April this year.
“IMLA would like to have seen the Chancellor offer more support to the sector by announcing a reduction in the 3% additional stamp duty which has been levied on second and subsequent property purchases since 2016. This extra tax is an added financial burden on the private sector landlords who provide homes for 20% of the UK’s households, at a time when our research indicates they are anticipating an increase of 80% in their mortgage costs over the next two years. Given the dramatic imbalance between supply and demand in the private rental sector, which has pushed rents to record levels, an incentive to encourage landlords to invest in more properties and increase supply would have been very welcome.
“Instead, we got the contrary, with the abolition of Multiple Dwellings Relief (MDR). Jeremy Hunt freely admits this relief was aimed at encouraging investment in the Private Rental Sector, and government figures estimate that MDR was worth £730m to investors between 2016 and 2022. Scrapping this incentive is a surprising blow, at a time when the sector desperately needs support.”
Stevie Heafford, tax partner at HW Fisher, commented: “The proposed removal of the furnished holiday lettings (FHL) tax regime could level the playing field between FHLs and buy-to-lets, potentially raising £300m for other tax cuts.
"Current FHL rules demand a property must be available for rent for at least 210 days in a tax year and rented for at least 105 so many second-home owners do not qualify. However, the removal of the regime will be another blow to legitimate holiday let businesses still recovering from the impact of the Covid pandemic.”
Paresh Raja, CEO of Market Financial Solutions, said: "In his attempts to woo voters before the upcoming election, the Chancellor missed a trick by not bringing forward more meaningful, positive policies for the property market. But we knew that was likely to be the case.
"Cutting property CGT rates will be welcomed in some quarters. But elsewhere, after years of tightening regulation in the buy-to-let market, the Government has indeed now moved to put the squeeze on holiday lets. Ensuring there are ample properties available for local homebuyers in tourist hotspots makes sense, but it is regrettable that the solution is always to target investors and penalise landlords rather than boosting supply through greater investment into housebuilding."
Nicky Stevenson, managing director at national estate agent group Fine & Country, added: “Reducing the higher rate of capital gains tax should inject some extra energy into the housing market by increasing the number of properties for sale.
“Teetering landlords unsure about whether to take the plunge and sell their property will be encouraged by this announcement.
“This should offer hope for first-time buyers who are the foundation of the property market, but have been hit particularly hard by high interest rates.”
