07/03/2024

Spring Budget 2024: It’s good and bad news for holiday let owners

Business

In an impactful decision for the UK’s holiday home market, the Spring Budget 2024 introduces two changes to property investment tax, affecting both holiday lets and second homes.

Key takeaways

  • The bad news: It will cost more to operate annually with the furnished holiday letting scheme (reportedly worth £300m) being abolished.
  • The good news: You may pay less tax when you sell your property, with the higher rate of property capital gains tax on buy-to-let properties to be reduced from 28% to 24%.

1. £300m furnished holiday letting scheme to be abolished

The Chancellor confirmed that the government is cutting back on the financial perks enjoyed by holiday let owners.

The first of the holiday let-related announcements is the proposed abolition of the £300m furnished holiday letting scheme from April 2025. The abolishment stops certain allowances, which will no doubt squeeze profit margins for holiday let owners.

Second home owners who make additional income from their holiday home – such as by making it available on Airbnb – will be affected, making this a less lucrative investment opportunity.

Before the announcement, landlords could benefit from a tax break of up to £4,000 a year when making £30,000 a year in rent. However, some critics have warned that it could have a negative impact on the areas which are reliant on tourism for their income.

An aerial shot of holiday let properties overlooking the sunny beach in St Ives, Cornwall.
Pictured: An area that will be affected by the announcement, St Ives in Cornwall. Source: Getty Images.
17/11/2023

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This measure marks a significant shift in government policy, aiming to address the UK housing supply issue and the impact of short-term holiday homes on local communities.

By abolishing the furnished holiday letting scheme, it seems the government is pricing landlords out of owning second homes in tourist hotspots and instead favouring long term residential properties.

Alistair Handyside is the owner of Higher Wiscombe, a group of luxury holiday cottages in East Devon. He told MailOnline: “It will alienate the owners of the 127,000 properties that will be affected. But worse of all it will damage the visitor economy. Fewer holiday lets mean fewer visitors to pubs and attractions. I can’t see any positive in this.”

Capital gains tax graphic.

2. Higher rate of capital gains tax reduced from 28% to 24%

Secondly, the higher rate of capital gains tax for second home and buy-to-let properties will be reduced from 28% to 24%, from April 2024.

This change is reported to provide some relief to landlords and property investors who have faced a series of unfavourable tax changes in recent years, including the phasing out of mortgage interest relief.

It means that landlords will be able to keep a larger portion of their profits after tax, incentivising property sales and encourage portfolio reshuffling. This may lead to an uptick in market activity and increase housing stock for permanent UK residents.

It’s important to note that this tax change applies specifically to the higher rate of capital gains tax on residential property gains. The basic rate of capital gains tax remains unchanged at 18% for residential property gains and 10% for gains on other assets.

This decision may make buy-to-let a more viable investment option again. By reducing the tax burden on capital gains, the government may be aiming to encourage landlords and investors to hold onto their properties for longer periods, potentially increasing stability in the rental market.

 

What does this mean for my holiday let?

 

The Spring Budget 2024 delivered a mixed bag for holiday let owners, but ultimately encouraging people to sell their holiday lets. While the reduction in capital gains tax rates may provide some relief when selling properties to earn more on the sale, the abolition of the furnished holiday letting scheme is a blow as there are increased annual operational costs.

Without these tax advantages of the furnished holiday letting scheme, the profitability of holiday let businesses will be squeezed. Operating costs are likely to increase, leaving less net income for holiday let owners after paying taxes. This could make some holiday letting businesses unviable, particularly those with slimmer profit margins.

While the reduction in capital gains tax rates from 28% to 24% on residential property gains provides some offset when selling, it may not fully compensate for the loss of valuable tax reliefs during ownership.

Overall, the Budget changes suggest a shift in government policy away from incentivising holiday lettings towards increasing housing supply for long term rentals or permanent residents.

Holiday let owners will need to carefully evaluate the impact on their businesses and potentially explore alternative strategies or property uses.

Remember, it’s crucial not to get caught underinsured. It’s incredibly important for holiday home and buy-to-let property owners to ensure they have appropriate insurance cover in place to protect their investment properties.

Will you be affected by the Budget squeeze on holiday lets? Email us!

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