The UK government is set to introduce significant changes to the tax treatment of furnished holiday lets (FHL) from April 2025, despite objections from MPs and concerns over potential unintended consequences.
Resistance to Tax Changes
The new rules, announced by Chancellor Jeremy Hunt in the last Budget, will eliminate interest deductions for businesses operated by individuals, replacing them with a 20% tax credit on the individual’s tax liability. This move has sparked a call for exemptions led by MP Peter Aldous, who voiced concerns about the broad application of the rules. “In certain parts of the country there might quite well be benefits but I argue that it is a quite blunt instrument and could have unintended consequences,” Aldous stated, suggesting exemptions for properties that cannot be residential, such as those on farms.
Aldous also highlighted the lack of consultation on the changes, comparing the situation to past controversies such as the “pasty tax” and static caravan tax introduced in 2012. Despite these concerns, the Treasury has decided against a consultation, with Nigel Huddleston, the financial secretary to the Treasury, affirming the government’s commitment to the reforms.
Government’s Stance on Simplification and Fairness
Huddleston, who works closely with Chancellor Hunt, highlighted that the tax changes aim to simplify the system and address distortions in the housing market. “The challenge is that when one of the goals is for simplification, when you start moving into the area of carve-outs and exemptions then it does cause great difficulties and it opens up the system to more challenges and abuse,” he explained.
He further noted that the favorable tax treatment of FHLs has incentivised short-term over long-term rentals, creating housing issues in many regions. Huddleston rejected the idea of a regional scheme for tax policy, insisting on a uniform approach across the country. “We are not abolishing FHLs – FHLs play a really vital role in our tourism ecosystem,” he clarified.
Ongoing Tax Incentives and Financial Impacts
The Treasury official outlined the continuing benefits under the new system, stating, “After the abolition of FHL, a higher rate landlord with mortgage interest costs of £12,000, would still get £2,400 taken off income tax bills in terms of relief.” Additional expenditures such as insurance and maintenance would also offer further tax relief opportunities for landlords.
Despite the planned changes, approximately 49% of the 197,000 properties currently within the FHL regime will remain designated for holiday use due to planning restrictions, highlighting the complexity and scale of the impact these changes will bring to the property market and the broader tourism sector.
