Tax and regulation changes all landlords need to know

These changes, affect various concerns within the housing sector, include the abolition of tax breaks for holiday lets, the end of Multiple Dwellings Relief, adjustments to Capital Gains Tax, and more.

This article delves into the details of these changes, exploring how they are set to reshape the landscape for property owners and the implications for the housing market at large. 

End of tax breaks for holiday lets 

The Spring Budget announced the ending of tax breaks for properties rented out as holiday accommodation. Introduced in the 1980s, the Furnished Holiday Lettings (FHL) scheme provides tax advantages to landlords who let short-term furnished holiday properties compared to those who rent residential properties to longer-term tenants. 

The FHL scheme will be abolished from 6th April 2025, which means short-term and long-term lets will be treated the same for tax purposes. 

The announcement follows concerns that the amount of holiday lets, driven by services like Airbnb, is making it harder for local people to access long term housing in popular tourist areas like Devon, Cornwall and the Lake District. 

Among the changes that landlords will see due to the ending of the FHL scheme are interest and finance costs will be restricted to 20% basic rate relief and business asset Capital Gains Tax reliefs will not be available on the sale of the property, resulting in a higher rate of tax applicable.  

Wealth planning firm Quilter said holiday home owners could lose an average of £2,835 a year, based on a £350,000 property purchase price, a 4.5% annual mortgage rate and £20,000 rental income. 

Caroline Miskin, Senior Technical Manager at the ICAEW Tax Faculty, said: “It will be interesting to see whether this change does actually encourage landlords to move to longer term lets. The change appears to be a simplification of the tax system but could result in disputes and tribunal cases over whether a lettings business constitutes a trade.” 

Find out more here.  

Abolition of Multiple Dwellings Relief 

The Chancellor announced that Multiple Dwelling Relief (MDR) will end on 1st June 2024. MDR provides a Stamp Duty Land Tax relief for people who purchase more than one dwelling in a single transaction in England and Northern Ireland. 

MDR was introduced in 2011 with the aim of increasing investment in residential property and the private rented sector. However, a HM Revenue and Customs evaluation found “no strong evidence” that MDR is meeting the original objective. As a result, the Government decided to scrap the relief.  

Property transactions with contracts exchanged on or before 6th March 2024 continue to benefit from the relief regardless of when they complete, as do purchases completed before 1st June 2024. 

The scrapping of the relief was a surprise move as a Government consultation into the MDR reform did not include abolition. The change could mean higher costs for landlords looking to expand their property portfolios and may impact the availability of housing.  

Capital Gains Tax reduced 

The higher rate of Capital Gains Tax for residential property disposals will be cut from 28% to 24% from 6th April 2024. The lower rate will remain at 18% for gains that fall within an individual’s basic rate band.  

Explaining the reason for the change, the Government said: “This will encourage landlords and second home-owners to sell their properties, making more available for a variety of buyers including those looking to get on the housing ladder for the first time.”  

Empty property relief ‘reset period’ extended 

The Budget said that the Empty Property Relief “reset period” will be extended from six weeks to 13 weeks from 1st April 2024 in England.  

Property owners eligible for the relief do not have to pay business rates on an empty office or retail property for three months or six months for industrial buildings.  

The change means that a property must be empty for at least 13 weeks before a new relief eligible-period starts.  

The Government said the extension of the reset period is aimed at disincentivising “the widespread practice colloquially known as “box shifting”, in which landlords repeatedly occupy properties for short periods of time in order to claim further Empty Property Relief”. 

Clampdown on ‘rogue’ business rates agents 

Alongside the Spring Budget, the Government published responses to its business rates avoidance and evasion consultation. 

It said that many respondents reported being aware of “rogue” business rates agents who take advantage of business owners’ lack of understanding about the business rates system by publicising avoidance or evasion schemes and locking firms into long, unfavourable contracts. 

In response, the Government said it will improve communications to ratepayers, particularly small business owners, so they can make a more informed decision when selecting a business rates agent.  

Commitment to build a million homes 

The Government said it is “on track to deliver one million homes within this Parliament”. 

The Spring Budget allocated over £240m to housing projects in London with up to 7,200 homes in Barking and up to 750 homes in Canary Wharf. 

In addition, a new £20m investment in social finance will build up to 3,000 new homes and “improve capacity of local community groups to deliver housing”. 

Alongside the Budget, the Government set out a vision for 20,000 homes in Leeds, and £4m in funding for the Euston Housing Delivery Group in London to support plans to deliver up to 10,000 new homes. 

Class 4 National Insurance Contributions reduced 

Following the 1p cut announced in the 2023 Autumn Statement, the 2024 Spring Budget announced a further 2p reduction in the main rate of self-employed National Insurance Contributions (NICs). 

  This means that from 6th April 2024, Class 4 NICs for self-employed landlords will be reduced from 9% to 6% on profits from £12,570 to £50,270. 

VAT threshold increased for commercial and furnished holiday lets 

Landlords who rent out commercial properties or have Furnished Holiday Lets (FHLs) may be affected by the Government announcing that the VAT threshold will increase from £85,000 to £90,000 from 1st April 2024. The deregistration threshold will rise from £83,000 to £88,000. For Northern Ireland, the registration and deregistration thresholds for acquisitions will increase from £85,000 to £90,000. 

The Government said the change means that over 28,000 businesses will no longer be VAT registered and will benefit from reduced admin. 

Get in touch   

Let TaxAssist Accountants take the hassle out of your property finances, so you can focus on managing your property. Call us today on 0131 665 0771 or use our online enquiry form. 

Last updated: 11th April 2024