Let it be – MPs argue for retention of furnished holiday lettings tax regime

The short debate was obtained by Conservative MP Peter Aldous, and he and the minister were the only contributors able to make full speeches, but MPs from a range of other parties intervened, mostly – like Aldous – critical of the proposed changes.

Aldous began his remarks by acknowledging that, in some areas of the country, the proposed change might assist local people in renting properties more easily, but he suggested that in others holiday lettings are not having a negative impact and are in fact “a vital component of local economies”. This could even be seen in adjacent areas, he suggested, putting his own constituency – Waveney in Suffolk – in the latter category whereas Southwold, further down the Suffolk coast, might be in the first category.

Aldous cited the Office for Budget Responsibility forecast that indicates the abolition of this regime alongside multiple dwellings relief will raise £0.6 billion of additional receipts by 2028-29. He argued that this figure “pales into insignificance compared with the potential loss of value added and local jobs”. He expressed doubts that this reform would fulfil its objectives of simplification, creating a level playing-field and supporting people to live in their own areas.

The MP emphasised that furnished holiday lettings are a long-standing economic lifeline for coastal and rural areas and should not be considered a “tax loophole”. The Professional Association of Self-Caterers estimates that even a modest 20% reduction in furnished holiday lets could result in the loss of £1.9 billion gross value added and 46,000 jobs, he said.

Aldous said that planning restrictions mean 76,000 furnished holiday lets could not be used as residential dwellings. He argued that “there is no statistical evidence to suggest that furnished holiday lets have a disproportionate impact on house prices.”

The unintended consequences of this change are, he summarised, “that there would be thousands of job losses; a proliferation of empty properties, which could not be used for long-term lets for planning reasons; and a loss of billions of pounds to coastal and rural areas”.

Aldous posed nine questions to the minister, asking mostly about the evidence behind the reform, but also touching on the absence of consultation, the risk of properties being left empty and whether the change will result in “a group of people who are essentially entrepreneurs being retrospectively taxed at a rate that is 4% higher than the top rate of capital gains tax that applies to a passive investor of listed shares?”

He asked whether the Treasury would “align the VAT treatment of holiday lets with that of long-term lets… or will actively managed FHLs now face a more punitive tax regime than a passive private rental investor?”

Concluding his remarks, Aldous argued that the proposal would have only a marginal impact and, if it is to be equitable, that it would have to be changed in a way that complicates, rather than simplifies, the tax system. He urged the government to launch a consultation to consider a “more targeted localised approach”.

Intervening in Aldous’s speech, Duncan Baker (Con) suggested that the policy change might lead to more properties coming onto the market to be then “snapped up” as a second home.

In another supportive intervention, the DUP MP, Jim Shannon, believed that the FHL tax incentive could be beneficial and its removal “may prohibit people from doing up the old granny flat in the garden, and so prevent the local economy from benefiting from bed nights”.

Two MPs representing Scottish islands criticised the government’s plans. Alistair Carmichael (Lib Dem) argued that the answer to the housing shortage is to build more houses rather than ‘punishing’ holiday let landlords. He said that the benefit of the FHL tax provision is that it allows for the improvement and professionalisation of the sector. Angus Brendan MacNeil (Independent) suggested that there is no evidence that if these properties went on sale they would become affordable houses.

Simon Jupp (Con) urged the minister to hold a public consultation about the changes and consider a list of exemptions – for example, if a property cannot be a permanent residence because it is on a working farm.

Christine Jardine (Lib Dem) urged the government to speak to the devolved administrations and find a way forward for the industry. She warned that some representatives of the furnished holiday lets association in Scotland “feel that they have been hit by a double whammy” with this legislation coming on top of short-term let licensing legislation in Scotland.

Responding to the debate the Financial Secretary to the Treasury (FST), Nigel Huddleston, said there is no plan for a consultation on this change but he acknowledged members' concerns and said he was happy to engage with them. He said many other MPs had argued for these changes.

Responding to Aldous’s suggestion that different approaches could be taken in different areas, the minister acknowledged that situations are different in different places, “but the problem is that we cannot do tax treatment, such as income tax relief, ward by ward or constituency by constituency”.

Huddleston emphasised that the government is not proposing to abolish FHLs, only to change their tax treatment to put them on an “equal footing” and create a level playing field with long-term lets. He said that, in certain parts of the country, investors currently prefer short-term lets over long-term lets because of their beneficial tax treatment.

Anne Marie Morris (Con) intervened to ask whether the government would consider the Office of Tax Simplification’s suggestion of a carve-out for properties that cannot be used in the private rented sector because of covenants on them.

The minister replied that the goal of this change is simplification and if the government starts providing exemptions “it causes great difficulties”. He reiterated the government's intention for “the tax reform to apply to all properties”. He concluded that after the separate FHLs regime is abolished, a higher rate paying landlord with mortgage interest costs of £12,000 can still receive up to £2,400 off their income tax bill through relief – more if they have expenditure replacing furnishings or charges such as insurance and letting agent fees.

You can read the full debate here.