Labour’s proposed abolition of Furnished Holiday Let (FHL) tax allowances could have a catastrophic impact on the British tourism industry, say the people fighting back.
Currently, FHLs are exempt from finance cost restriction rules, have more beneficial capital allowances rules and reliefs from taxes on chargeable gains for trading business assets, and are included as relevant UK earnings when calculating maximum pension relief.
The new tax regime is described as a “stealth tax” that affects small businesses, particularly those in the holiday let sector, and involves changes to four key areas.
The change will apply to the finance cost restriction rules, meaning loan interest will be restricted to the basic rate for Income Tax, capital allowances rules for new expenditure will be removed, and replacement of domestic items relief will be allowed.
It will also withdraw access to reliefs from taxes on chargeable gains for trading business assets and no longer include this income within relevant UK earnings when calculating maximum pension relief.
This would place a significant financial burden on small business owners, with some estimating a 15% loss in net income, and lead to reduced investment in property improvements and potential business closures.
The industry, which supports local economies by attracting high-spending guests, faces a severe threat, warns holiday let owner Alistair Handyside.
Handyside is also the Professional Association of Self-Caterers (PASC UK), the largest association representing the professional holiday lets sector in the UK.
He told the Daily Express: “[It will] damage the visitor economies massively. So we do genuinely believe that this puts the great British holiday at threat … It’s not just going to affect us is what we’re saying.
“Governments have never figured out … how to regenerate rural and coastal economies. So for goodness sake, don’t damage them with a misguided way to deal with housing stock, or whatever their motivation is.
“Most of these properties would never be in housing stock; they’re dedicated holiday cottages. It will damage the great British holiday if it goes through.”
Handyside also criticised the government’s short notice and lack of concessions in the wake of the possible alterations to a 40-year-long tax allowances scheme.
The FHL tax treatments were introduced in 1984 and Labour wants to scrap them to “promote fairness by removing the tax advantages that furnished holiday let landlords have over other residential property landlords”.
The new tax regime will come into effect on or after 6 April 2025 for Income Tax and for Capital Gains Tax, and from 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains.
Handyside said: “When the government describes it as a tax loophole, 40 years as a formal tax regime is not a tax loophole … We’re not landlords, we’re hosts, and you’re trying to treat us like landlords. We have guests, not tenants.”
Together with PASC UK, Handyside is pushing for the government to pause the abolition of the FHL tax allowances in order to give property owners more time to prepare for the transition.