‘Looming end to furnished holiday lets rules will push out landlords’
Claim is made by three tax experts just two weeks before HMRC's huge changes to FHL tax benefits, enjoyed by landlords since the 1980s.
Tax experts have warned landlords and the agents who manage properties operated through furnished holiday let businesses that the looming abolition of tax reliefs in less than a month will push operators out of the market.
The comments have been made ahead of the 1st April deadline which was announced by former Tory chancellor Jeremy Hunt in May last year, and was followed by an HMRC ‘crackdown’ into landlords who operate ‘under the radar’.
FHL rules offer benefits to landlords who operate their properties through a business in several key areas. They can claim the interest on their mortgages as an expense; are given more capital allowances; given access of reliefs from taxes on chargeable gains for trading business assets; and can include their income as ‘relevant earnings’ when calculating maximum pension relief.
Three technical tax experts from the industry’s trade body the ICAEW – Stephen Relf, Lindsay Wicks and Catherine Ford – have warned that the abolition of the reliefs within the FHL rules will double the tax many landlords pay and persuade many to quit the sector – albeit also generating an extra £600m in revenue for HMRC.
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Speaking during an ICAEW podcast called ‘Check out time for furnished home lets’, the trio also say that many areas of how the system of taxation for furnished holiday lettings will work have yet to be clarified. This includes most importantly how the UK’s 130,000 FHL landlords decide how to run their businesses after April 1st if they do decide to stick with it.
These rules have been around since the 1980s and were intended to make it easier for business owners operating FHL properties to decide tax-wise whether their business is a ‘trading company’ that happens to run holiday lets or a landlord specialising in FHL rentals, with different tax benefits and reliefs depending on their choice.
“Now, people just want certainty and finality for their tax affairs,” says Wicks. She also points out that one potential ‘test’ to determine whether a business is one kind or another is to look at how the properties are operated.
“One is that the maximum a property can be let out is for 31 days, and another is that the owner can’t use it as their home in between lets and ‘not for their own use’, and also the level of time devoted to running the property or properties by the landlord, or their letting agent,” she adds.
But, the ICAEW trio reveal, overall abolishing the rules means operators are now left ‘in limbo’.
Other areas for clarification include capital allowances, the disposal value of fixtures when selling properties and whether losses at a FHL property can be carried forward against a businesses’ profits, and business asset dispersal relief.
In its most recent update on the looming changes, HMRC has said the abolition of FHL rules will promote “fairness and aligns the tax rules for furnished holiday lettings with those for other property businesses”.
The ICAEW experts are also critical of the changes overall, saying they are a ‘blunt instrument’ given the different types of holiday let markets around the UK, and that pushing out operators – while helping release more accommodation for locals in ‘hotspots’ – also endanger the many jobs linked to FHL operations.
They also say the abolishment of FHL rules had been ‘rushed’ and that a consultation on its unintended consequences would have been more appropriate.
