The tax benefits that Airbnb operators enjoy compared to individual buy-to-let landlords will soon disappear, as the government has decided to eliminate the Furnished Holiday Lets (FHL) tax scheme.
From April 2025, the scheme will be no more, and measures to stop any attempts to prematurely lock in tax advantages will also be put in place.
Chancellor Hunt expressed concerns that the tax setup is causing a shortage of properties for local people seeking long-term rentals.
“To better serve local communities with the tax code, I’m going to get rid of the Furnished Holiday Lettings regime,” stated Hunt.
Areas that draw many tourists, such as the Lake District, are reportedly losing their community character due to the existing policy.
Rebecca Wilkinson of Menzies LLP, noted for her expertise in property and construction taxation, remarked that the standout news for the property sector from the Spring Budget is the termination of the FHL scheme. This long-standing regime has been providing tax perks for those renting out furnished holiday accommodations.
She noted that the surge in furnished holiday homes can be attributed to tax changes that restrict mortgage interest tax relief for private landlords, a limitation not applicable to FHL businesses, making FHLs a more tax-savvy option.
The popularity of Airbnb has made it effortless for landlords to transition to holiday rentals, and post-Covid, there’s been an uptick in demand for UK vacation spots. Consequently, many landlords have found this switch lucrative.
This trend, however, is contributing to a housing shortage and making the property market inaccessible for locals in tourist hotspots. The government is of the view that axing the FHL regime will both equalize the playing field between short and long-term rentals and help residents stay in their locales.
Accountants at Lubbock Fine, Andrew Noton and Phil Blackburn, suggest that this move could also encourage landlords to sell their properties.
They noted that the boost in holiday rentals is a result of Airbnb’s rise over the past decade, often to the detriment of local home buyers.
Liam Monaghan from London Central Portfolio welcomes the change, saying that it should benefit the long-let market, where tenants are currently losing potential homes to holidaymakers. He explains that short-term rentals have been more tax-efficient, stripping the long-let market of properties, particularly in tourist-heavy cities like London.
He anticipates that the revised policy will motivate investors to re-enter the long-term rental market, thus increasing availability in a sector where demand is already outstripping inflation. Tenants are going as far as paying a year’s rent upfront to secure a rental over other prospective renters.
