Budget changes to holiday lettings could impact visitor economy

The abolition of tax breaks for people who let out properties to holidaymakers could have an adverse impact on Lancashire's tourism sector, according to a leading business advisor.

The Furnished Holiday Lettings regime was abolished by chancellor Jeremy Hunt in last week’s spring budget in a bid to make more long-term rental properties available to local people and prevent those in tourist areas being priced out of the housing market.

But according to Colin Johnson, leisure and tourism specialist at Lancashire-based  accountancy and advisory firm MHA Moore and Smalley, the scrapping of tax breaks for short term holiday lets, due to effect from April 2025, could have unintended repercussions for the visitor economy.

Colin, who advises businesses across the region, said: “I understand the reasons behind the chancellor’s decision, but abolishing this regime has potentially far-reaching consequences. 

“Holiday letting brings income into communities, second homes used for family recreation do not. Are we to assume that holidays abroad are the future where we support other economies? Why not have a wealth tax on second homes bringing income into communities instead?”

The longstanding FHL regime provides individuals and companies who hire out furnished properties as holiday lets with various tax advantages. 

Together with the rise of tech platforms like Airbnb, which enable people to rent our holiday properties more easily, it has led to a significant increase in landlords providing furnished holiday homes over recent years.

Colin explained: “Many individuals have built up businesses supplying fully serviced accommodation that are treated as businesses. Not only is tax relief available on mortgage interest, but the businesses qualify on disposal for Business Asset Disposal Relief where the first £1m gain is taxed at 10%. If this is retrospective taxing it will upset many operators.”

Explaining the reasons for the changes in his budget, Mr Hunt said: “I’m concerned that this tax regime is creating a distortion meaning that there are not enough properties available for long-term rental by local people.

“So, to make the tax system work better for local communities, I am going to abolish the Furnished Holiday Lettings regime.”