As part of the 2024 Spring Budget, the UK Government has announced that they are abolishing the Furnished Holiday Lettings (FHL) tax regime from 6 April 2025, meaning short-term and long-term lets will be treated the same for tax purposes.
Individuals with FHL and non-FHL properties will no longer need to calculate and report income separately. The UK Government claim this will “level the playing field between short-term and long-term lets and support people to live in their local area.”
As background, in August 2022, the ASSC and the Professional Association of Self-Caterers (PASC) welcomed the opportunity to provide evidence to the UK Government’s Call for Evidence on Property Income Tax by the Office of Tax Simplification. We highlighted the benefits of having a different regime for taxing property income and capital gains for FHLs. FHLs are deemed trading businesses for income and tax purposes. As such they are subject to a more liberal tax regime than that of Buy to Let property businesses (BTLs).
Under the existing rules, to qualify as a FHL:
· The business must be carried on a commercial basis with a view to profit.
· The property must be provided fully furnished.
· It must be let for at least 105 days each year.
· It must be available for letting for at least 210 days each year and HMRC have confirmed that during Lockdown the property is still classed as available for let although legally it could not be let.
· ‘Lettings’ must comprise short term lettings of no more than 31 days.
· If the property is let out for periods longer than 31 days in one stretch, then none of the days will count towards the 105- and 210-day letting conditions.
UK Government Changes As part of the 2024 Budget, the UK Government stated the following:
“The government will remove the current incentive for landlords to offer short-term holiday lets rather than longer-term homes by abolishing the Furnished Holiday Lettings (FHL) tax regime. This will level the playing field between short-term and long-term lets and support people to live in their local area. This will take effect from April 2025 and draft legislation will be published in due course.”
The ASSC is disappointed with the changes announced by the UK Chancellor as we believe that FHLs should continue to enjoy the same tax treatment as any other business. The ASSC and its industry partners consider that the impact of this policy reversal will result in fewer entering self-catering, with FHL properties being sold and probably ending up as second homes, exacerbating housing challenges in communities while providing minimal contribution to the economy.
In addition, we consider that ongoing investment for existing businesses will be hit, with possible loss of quality. Self-catering is a marginal profit activity, and these rules will see already small profits decline. This effect will be felt most in areas of fragile economy, negatively impacting our island, rural and remote communities.
This policy, in conjunction with short-term let licensing and planning control areas introduced by the Scottish Government represents yet another threat to the sector and may be the last straw for many.
The ASSC worked collaboratively with the UK Government in 2010 to avoid this disadvantage to the self-catering sector. It is disappointing that it has come to this.
More detail here.
Fiona Campbell, CEO of the Association of Scotland’s Self-Caterers, said:
“The abolition of the Furnished Holiday Lettings (FHL) tax regime by the UK Government is the last thing the beleaguered and hard-pressed Scottish self-catering sector needs at the present time.
“In recent years, our sector has been hit by the Scottish Government’s onerous and burdensome short-term let licensing and planning regulations so the UK Chancellor’s Budget announcement on FHL spells yet more dispiriting news for a crucial component part of the Scottish tourism industry.
“Self-catering businesses should not be seen merely as a quick revenue source by the UK Government, but instead as a vital, valued and integral part of our vibrant tourist market. The sector provides huge economic benefits for local economies and local communities and must be supported by government rather than being used as a convenient scapegoat for wider failures in housing policy.
“The ASSC maintains that the UK Government would be much better placed easing the regulatory burden on long-term tenancies as opposed to penalising the holiday let sector. Rather than scapegoating and gaslighting, policymakers need to take a proactive and holistic approach to housing challenges, not simplistic interventions which will simply hit small businesses for no material benefit.”
We are working with our fellow Trade Associations including PASC, and others to challenge the abolishment of the FHL Allowances which will affect many ASSC members. To help us in this work, please take part in this Petition, it will only take a couple of minutes: https://pascuk.eaction.online/FHL.
We are also doing our best to understand the implications. At this point, no legislation has been laid and we are awaiting further detail.
Expert advice
We have been wary of trying to answer or advise owners on what to do, this is financial advice and just like legal and fire this needs to come from experts. Whilst owners are understandably keen to act quickly and agency Members keen to inform, we simply do not have that information yet.
In the meantime, the ASSC is liaising with cross-party MSPs on the matter. We will advise on Webinars and Papers to support you through this whilst continuing to lobby the UK Government, MPs and MSPs.
We have weekly meetings arranged with the leading experts on this matter and over the coming days and weeks, we will keep members informed of any changes, and the details of the changes and advice on how to mitigate the impacts. This will come in the form of FAQs, Guidance Sheets and Webinars, which will be free for members.
We will also support members in terms of benefiting from Capital Allowances whilst they still can.
Keep up to date here.