Fairness Returns as Holiday Let Tax Breaks Scrapped: Impacts on the West Midlands and Worcestershire

In a move that aims to restore balance in the housing market, HM Revenue and Customs (HMRC) is set to abolish tax breaks for Furnished Holiday Lets (FHLs) from April 2025. This decision is expected to generate an additional £35 million for the exchequer in its first year, marking a significant shift in the government’s approach to property taxation. The policy change has been welcomed by many, including Propertymark, who have long advocated for parity between short-term and residential letting.

The Rationale Behind the Change

FHLs have enjoyed favourable tax treatment for years, making them an attractive option for property investors. To qualify as an FHL, a property must be available for short-term letting to the public for at least 210 days a year and let out for a minimum of 105 days. Additionally, the property should not be used as a long-term let for more than 31 days at a time for significant periods during the tax year. These requirements have allowed FHLs to benefit from business-related tax reliefs, which are not available to long-term residential lets.

The decision to scrap these tax breaks was first announced by the then Chancellor, Jeremy Hunt, during the Spring Budget in March 2024. Hunt explained that the move was part of a broader effort to make the tax system more efficient and to help local people afford to live in their communities. By removing these tax advantages, the government hopes to discourage the proliferation of short-term holiday lets in areas where housing availability is already strained.

Impact on the West Midlands

The West Midlands, with its vibrant cities like Birmingham and Coventry, as well as picturesque rural areas, has seen a significant increase in the number of FHLs in recent years. The growth of short-term holiday lets has been particularly noticeable in areas popular with tourists, such as the Malvern Hills and parts of the Cotswolds that border the region. While this has brought economic benefits through increased tourism, it has also contributed to rising property prices and reduced housing availability for local residents.

The abolition of tax breaks for FHLs is likely to have a notable impact on the West Midlands. Property owners who have relied on these tax incentives may reconsider their investments, potentially leading to a reduction in the number of short-term lets in the region. This could help to alleviate some of the pressure on the housing market, making it easier for local people to buy or rent homes.

However, there are concerns that the removal of these tax breaks could have negative consequences for the local tourism industry. Fewer short-term holiday lets might lead to a reduction in accommodation options for visitors, potentially impacting local businesses that rely on tourism.

Worcestershire: Balancing Tourism and Housing Needs

Worcestershire, a county known for its natural beauty and historic towns, has also experienced a surge in the number of FHLs. Popular tourist destinations such as Worcester, Malvern, and the Wyre Forest have seen a growing number of properties being converted into holiday lets, driven by the lucrative returns they can offer.

While this trend has been beneficial for the local economy, it has also exacerbated housing affordability issues in certain areas. For instance, in popular tourist spots, local residents have found it increasingly difficult to compete with investors for available properties, leading to a shortage of affordable housing. The new tax policy could therefore bring some much-needed relief to the local housing market by reducing the incentive to convert homes into holiday lets.

At the same time, Worcestershire’s reliance on tourism means that the reduction in FHLs could have economic implications. The challenge for the county will be to strike a balance between maintaining a thriving tourism sector and ensuring that local people have access to affordable housing.

A Step Towards Fairness

The abolition of tax breaks for FHLs represents a significant shift in the government’s approach to housing policy. By levelling the playing field between short-term holiday lets and long-term residential rentals, the government aims to create a more equitable housing market. Propertymark and other industry stakeholders have praised this move as a step towards greater fairness and balance.

While the impact of this policy change will vary across different regions, its overall goal is clear: to ensure that housing remains accessible and affordable for those who live and work in their local communities. In areas like the West Midlands and Worcestershire, where the rise of FHLs has had both positive and negative effects, the new tax rules could help to restore some balance and support the long-term sustainability of local communities.

As the April 2025 implementation date approaches, property owners and local authorities in these regions will need to carefully consider how to adapt to the new landscape. Whether this policy will succeed in achieving its intended outcomes remains to be seen, but it marks a clear intent by the government to address the challenges posed by the growing FHL sector and to prioritise the needs of local residents.