The government is committed to making property tax change, says Tory MP

The government is committed to making property tax change, says Tory MP

The Treasury has rejected calls for exemptions to the new furnished holiday let rules set to be introduced from next year.

From 6 April 2025, interest for businesses operated by individuals will cease to be a deduction and relief will instead be given as a 20% tax credit from the individual’s tax liability.

A number of MPs, led by Peter Aldous, have requested that certain exemptions to the new FHL rules be included, and also called for a consultation on the changes, which were announced by the chancellor at the Budget last month.

Aldous said: “In certain parts of the country there might quite well be benefits but I argue that it is a quite blunt instrument and could have unintended consequences.

“Concern is widespread – the Treasury should consider a list of exemptions, for example if a property cannot be residential, for example if it is on a farm.

“Since the Budget I have been contacted by many constituents about the reforms. In many ways I have déjà vu on this, it is similar to the measures introduced in 2012 on the pasty tax and static caravan tax.”

Nigel Huddleston, the financial secretary to the Treasury, told MPs that the government is committed to introducing the new furnished holiday let rules in April next year. He also ruled out a consultation on the regulations, saying the government was committed to making the tax changes.

Huddleston is well-positioned to comment on the issue given that he works closely with the chancellor Jeremy Hunt, who believes that the tax changes will free up more accommodation for locals and reduce the tendency to invest in short-term lets due to their favourable tax treatment.

Huddleston told MPs: “The challenge is that when one of the goals is for simplification, when you start moving into the area of carve-outs and exemptions then it does cause great difficulties and it opens up the system to more challenges and abuse.

“There are certain parts of the country where the current regime with the particular beneficial rates for FHL properties is creating an incentive for a disproportionately large number of properties to be FHL, therefore short term rentals rather than long term rentals. And that is itself causing problems in a large part of the country.”

He also rejected the premise of a regional scheme, adding: “When it comes to tax policy you can’t do that ward by ward, county by county, it has to be across the country.

“We are not abolishing FHLs – FHLs play a really vital role in our tourism ecosystem.

“The intention is for the tax reform to apply to all properties, so for example there will continue to be benefits.

“After abolition of FHL, a higher rate landlord with mortgage interest costs of £12,000, would still get £2,400 taken off income tax bills in terms of relief, and if they spend a further £8,000 on insurance, letting agents, replacing domestic items, they could save a further £3,200 by using tax reliefs available for all landlords.

“It is about levelling the playing field and there will still be tax incentives, but we do not want a distortion when anyone wants to buy a new property or indeed existing properties there is a false incentive that is causing some problems because it defaults human behaviour and natural better ROI towards short term lets rather than long term lets. That is what we are trying to correct.”

At the moment there are around 197,000 properties in UK which fall within the FHL regime, but just under half – 49% – can be used for holiday purposes, which means 76,000 cannot be used for residential dwellings as there are planning restrictions.