The recent Spring Budget delivered by Chancellor, Jeremy Hunt, was full of surprises. The changes that really stood out were centred around the property sector. So, what does this mean for taxpayers?
We’ll take you through a summary of the key points in the Budget statement and how they’ll impact property owners and investors.
Furnished holiday lets
The Government announced that it’ll abolish the furnished holiday lettings (“FHLs”) regime from April 2025. This will remove the current tax reliefs available to individuals letting out their furnished properties on a short-term basis.
What are the current tax benefits available to landlords running an FHL business (which aren’t available to properties let on a long-term basis)?
- Mortgage interest — fully deductible against taxable rental income. This contrasts with a normal property rental business, where an individual receives basic rate tax relief on any interest paid and does not get full tax relief on the mortgage interest paid by them.
- Profits from FHLs — treated as ‘relevant earnings’ for pension contribution purposes.
- FHL businesses — can claim Capital Allowances on fixtures and fittings.
There are also various capital gains tax (CGT) reliefs available for individuals who dispose of a FHL business, they include:
- Business Asset Disposal Relief (BADR) — 10% capital gains tax rate applies on disposal of FHL that are personally owned.
- Rollover Relief and Gift Holdover – this relief enables the gain arising from the disposal of a FHL to be deferred.
What is changing?
So, from 6 April 2025, FHL’s will be subject to the same tax regime that apply to long-term property lets. The bottom line: there’ll be no tax incentives for owning an FHL compared to that of a long term let. For example, special tax reliefs will not apply on the sale of an FHL, nor will there be any special income tax reliefs available for FHL owners such as full tax relief on mortgage interest.
As a consequence of these changes, landlords may wish to consider selling their FHL businesses prior to 6 April 2025 enabling them to cash-out and bank the 10% CGT rate (assuming BADR applies), especially where the changes could make the FHL business less financially viable going forward.
If you’re concerned about how these changes will affect you, get in touch with our team. We can help you plan for the changes to the FHL regime that are due to take effect in April 2025.
Reduction in Capital Gains Tax for residential property disposals
From 6 April 2024, the higher rate of Capital Gains Tax (“CGT”) for residential property will reduce from 28% to 24%. The lower rate of CGT on residential property disposals will remain at 18%.
The reduced higher rate CGT will help to some extent alleviate the position for individuals who currently have an FHL but won’t benefit from BADR on disposal of a FHL after 6 April 2025.
Stamp Duty Land Tax changes and abolition of Multiple Dwellings Relief
Multiple dwellings relief (“MDR”) is a relief that can reduce the amount of Stamp Duty Land Tax (“SDLT”) if you purchase more than one residential property as part of a single transaction.
Currently, individuals that acquire multiple residential properties can benefit from MDR where the SDLT is calculated based on the average price per property. The relief ensures the buyer does not pay SLDT at a higher rate than if bought separately, where lower rate bands would have applied. This can lead to substantial SDLT savings if several residential properties are purchased at the same time.
Following Jeremy Hunt’s announcement, MDR will be abolished for transactions completing on or after 1 June 2024. This change will not impact individuals purchasing a single dwelling and will apply to those purchasing two or more dwellings in a single transaction (or linked transactions in England and Northern Ireland). Separate rules apply to Wales and Scotland.
The rules on the purchase of six or more residential properties or mixed properties (i.e. a purchase that includes both residential and non-residential properties) in a single transaction have not changed. These transactions will continue to qualify for the lower, non-residential rates of SDLT.
As Land and Buildings Transaction Tax (“LBTT” — the Scottish equivalent of SDLT), is a devolved tax, the proposed changes won’t have an immediate impact on transactions where two or more dwellings are purchased in Scotland, as MDR will still be available.
However, given the changes to the SDLT regime, the LBTT position may be reviewed, and changes could be made to bring that regime in line with that of the SDLT in the next Scottish Budget.
Also be aware that a general election will be held at some point within the next 12 months — a change of government may result in further changes to the rules.
Questions? Get in touch with a member of our team: PersonalTaxAdvisory@ct.me
