By Debbie Franklin, Director of Tax and property tax specialist
Now that the dust has settled, let's consider some of the wider implications of the announcement.
We still do not know any of the details relating to the announcement. Some expected draft legislation to be published on 'Tax Administration and Maintenance Day' (18 April) but nothing was forthcoming. Some commentators have surmised that the measure was 'last minute' and that it will be a while before detailed legislation can be published.
Further detail cannot come soon enough, however. In order for accountants and agents to effectively advise their clients, they need to know about the Treasury's plans in good time. The one thing that is certain is that 6 April saw the start of a period of concern and uncertainty for those with FHLs.
The measure was announced as a means of making more affordable homes available. The increase in FHLs has resulted in fewer homes available for residents, particularly in tourist hotspots. According to BBC research, the number of holiday lets rose by 40% between 2018 and 2021, with tourist areas seeing the sharpest increases.
Housing and poverty campaigners, however, have said that the measure is “too little, too late”.
The measure should not be considered in isolation; in the Budget the Chancellor also announced the abolition of stamp duty Multiple Dwellings relief (from 1 June 2024) and a 4% cut in the main rate of capital gains tax (CGT) on residential property to 24% from 6 April 2024. These measures not only incentivise disposing of FHLs, but dissuade landlords from buying more. In addition, non-tax measures such as the proposed licensing and registration schemes for holiday lets, to be introduced from the Summer of 2024, will mean owning a holiday let will entail even more compliance costs.
Those in the Tourism sector are concerned that the decrease in supply of holiday lets will have a knock-on impact for businesses and workers who rely on tourism.
Meanwhile, property experts are not sure if the measures will substantially increase the number of long-term lets. Whilst the rate of CGT has been cut, the Annual Exemption has decreased to just £3,000 for 2024/25. Property experts predict that selling prices for FHLs will decline, given that new owners will no longer be able to claim tax advantages. This could result in FHL owners keeping their properties and simply not bothering to rent them out.
We will keep you informed of any developments in this area.