The UK government’s spring budget proposal to abolish the furnished holiday lettings (FHL) tax regime has been compared to the controversial and highly ridiculed ‘pasty tax’ by a member of parliament.
MPs debated the proposal, which was announced in March, earlier this month. The debate was instigated by Peter Aldous, the Conservative MP for Waveney in Suffolk. Click here to read details of the debate from Hansard.
Mr Aldous said: “In some ways, I have a sense of déjà vu, in that the proposal mirrors…the 2012 budget to tax Cornish pasties and static caravans. The Office for Budget Responsibility has calculated that the measure, along with the abolition of the multiple dwellings relief, will raise £0.6 billion of additional receipts by 2028-29. [But] that figure pales into insignificance compared with the potential loss of [income] and local jobs.”
A host of MPs supported the views of Mr Aldous.
Alistair Carmichael, Liberal Democrat, Orkney and Shetland, said: “The answer to the shortage of housing is to build more houses; it is not to punish what is a very important part of the local economy, including in parts of the country like mine. The advantage of such a tax provision is that it allows for the improvement and professionalisation of the sector, which at the end of the day can only improve the visitor offering.”
Anne Marie Morris, Conservative, Newton Abbot, said: “Does it not seem obvious that what we need is a proper impact assessment of the reform? We need to look at the impact on the economy, the impact on housing, and the impact on the tourism sector.”
Christine Jardine, Liberal Democrat, Edinburgh West, highlighted the issues currently facing FHL operators in Scotland. She said: “I was recently visited by representatives of the furnished holiday lets association in Scotland, who feel that they have been hit by a double whammy: this legislation and the short-term let licensing legislation in Scotland. Should there not have been a joined-up approach? Would it not have been better for the government to speak to the devolved administration and find a way forward for the whole industry, rather than hamper one of Scotland’s biggest and most profitable sectors?”
Later in the debate, Mr Aldous added: “Furnished holiday lets are a long-standing economic lifeline for many coastal and rural areas. The regime supports micro and small businesses that are the cornerstone of many visitor economies. Abolishing it would hurt those businesses – including farmers who have diversified into tourism, as well as other businesses such as pubs, which rely on the lets for trade – and PASC [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 [to the economy] and 46,000 jobs. The former figure is considerably higher than the Office for Budget Responsibility’s assessment of the additional tax that will be generated.”
He continued: “Furnished holiday lets are not the cause of the housing crisis. PASC estimates that a total of 197,000 properties in the UK fall within the FHL regime. Due to planning restrictions, 39% of those holiday let properties can only be used for holiday purposes. That means that 76,000 furnished holiday lets could not be used as residential dwellings, and only 121,000 furnished holiday lets have planning permission to be used as residential dwellings. The context is important: those 121,000 dwellings without planning restrictions have been established not in the past three or four years but over many decades; however, they represent 0.4% of the 30.1 million total UK housing stock and just 40% of the annual house building target of 300,000 new homes. Although there might be anecdotal evidence to suggest that private rental landlords are moving into the short-term let sector, PASC can find no quantitative data to support that conclusion. Indeed, less than 2% of traditional short-term let businesses had previously rented their properties out as a long-term let.”
In response to Mr Aldous, Nigel Huddleston, Financial Secretary to the Treasury, said: “I should say up front that there are no plans for a consultation, but that does not mean that [MPs] cannot engage with me.
“At the moment, there is broad recognition that the current system is contributing to some distortions. There are parts of the country where the current regime, with beneficial rates for FHL properties, creates an incentive for a disproportionately large number of properties to be FHL – short-term rentals, rather than long-term rentals – which is causing problems. I have heard hoteliers and owners of B&Bs say that the current system is not fair and reasonable. I have heard owners of pubs, bars, and restaurants complain that the large number of short-term lets and FHL properties is undermining their value proposition.
“I gently say to members that we all have colleagues from different parts of the country and there is another side to the argument, although I understand the vehemence and strength of feeling in the chamber today. I know the pattern is mixed across the country, but the problem is that we cannot do tax treatment, such as income tax relief, ward by ward or constituency by constituency. As members know, we have a whole range of other initiatives to encourage the supply of housing more broadly and limit the impact, including through local taxation and restrictions on housing.
“We are proposing not to abolish FHLs, which play a vital role in our tourism ecosystem across the country, but to change their tax treatment to put them on an equal footing and create a level playing field with long-term lets. The problem is that if I were an investor thinking of buying a property in a certain area, it would make pure economic sense for me to get a short-term let rather than a long-term let. Therefore, in certain communities across the country, when a new property becomes available, there is an incentive for an investor to straightforwardly go for a short-term let rather than a long-term let because there is beneficial tax treatment. We are not eliminating the tax incentives but levelling the playing field so that the perverse incentive no longer exists.
“There is a belief that when we said we were abolishing the FHL tax regime, that meant we were abolishing FHLs. No, of course we are not. As I said, they play a vital role in the visitor economy, but we want to change the tax policy. The intention is for the tax reform to apply to all properties.
“There will continue to be benefits. After the abolition of the FHL tax regime, a higher rate paying landlord with mortgage interest costs of £12,000 per year would still get up to £2,400 taken off their income tax bill through the relief. If they spend a further £8,000 – for example, on insurance, letting agent fees, and replacing domestic items such as sofas, fridges, washing machines – they could save a further £3,200 in income tax by using the reliefs that are available for all landlords. It is about levelling the playing field. There will still be tax incentives, but we do not want that distortion. When somebody buys a new property or an existing property, there is a false incentive that is causing some problems, because human behaviour that naturally seeks a better return on investment leads them towards short-term lets, rather than long-term lets. That is what we are trying to correct.”
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