Furnished Holiday Let Boom Equals Budget Tax Rises

Published / Last Updated on 13/09/2021

Research by real estate adviser Altus Group into Government statistics on UK Furnished Holiday Let (FHL) property and published on the BBC website has found that there are over 11,000 more FHLs in the UK that have changed use from 2nd homes to FHLs than there were before the pandemic.

Pre pandemic, there were a total of 56,102 FHLs and now there are 67,740.  Of the 11,000 increase, 4,000 of those were in Devon and Cornwall alone.  This is clearly adding to the housing shortage and the government is bound to take action.

FHLs can be extremely attractive sources of income and leisure too.  The attractions of an FHL:

  • 2nd homes usually pay council tax in full, most FHLs qualify as a business and are subject to business rates, meaning that with small business rates relief, no taxes are payable to the local authority.
  • 2nd homes will be subject to inheritance tax on death, FHLs may qualify for Business Property Relief i.e. zero inheritance tax on death if they are run and qualify as a true trading business.
  • FHLs must be available commercially for a minimum of 210 days per year, meaning that owners can still use their property for 145 days per year as a 2nd home/holiday home.
  • Currently, to qualify as a FHL, the property only has to be occupied by fee paying holiday makers (not family and friends) for 105 days.  Again, this may mean the owner could stay in their 2nd home for up to 250 days per annum, although any longer term occupations can only be 155 days in succession.

FHLs are clearly an attractive investment given weekly rentals could be £1,000+ per week compared to a short term assured leasehold (normal residential buy to let) at a fraction of this sort of income.

The Government is Watching:

The Ministry of Housing, Communities and Local Government (MHCLG) issued a consultation paper and part of this suggested that FHLs should only qualify for business rates and therefore, small business rate relief for the time that it is commercially let and pay council tax during the other periods.

We also suggest given that landlords are already being ‘attacked’ by higher stamp duty charges and lower income tax relief on finance payments, capital gains tax increases are certainly a possibility.

We know that the government has already consulted on capital gains tax changes for 2nd properties and buy to lets.  Expect increases to these as well as FHLs in the Autumn 21 Budget.

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