As you're aware, the Chancellor Jeremy Hunt scrapped furnished holiday let (fhl) tax relief for property investors in his Spring Budget 2024, but could there be a glimmer hope based on the OTS Review of residential property income in November 2022.
In this review the OTS recommends that the government consider whether there is continuing benefit to the UK in having a separate tax regime for furnished holiday lettings and makes recommendations for future policy.
The OTS stated that if the furnished holiday lettings regime is abolished, the government may wish to consider means of making the boundary between trading and non-trading more certain. One possibility could be the introduction of a statutory ‘brightline’ test to provide a clear test for when property letting activities subject to Income Tax would qualify as a trade.
Respondents to the OTS were of the view that a distinction was necessary between income motive with a high level of management, as opposed to an investment gain motive likely to be sought from, say, a second homeowner.
Possible factors that could be considered within a brightline test are:
Minimum number of properties let: trading status cannot apply where fewer than a certain number of units are let, for example in the range of 5 to 10 properties.
Letting is on a short term basis: there already exists a definition of short term letting within the furnished holiday lettings legislation, which could be used for this purpose
No personal use of the property let: this condition should be introduced to distinguish the landlord with profit motive from an investor in property. Limited occupation for maintenance etc should be allowed
Level of personal time devoted to the property letting and services provided: the OTS acknowledges the difficulty in judging whether services are of a non-investment nature and looks instead at the provision of personal labour in the letting operation. For example, a minimum level of hours per week could be necessary where devoted by the proprietor, or a higher value where provided by employees/agents
With the above in mind, but no mention of a consultation on this matter during the budget, we can only wait patiently for draft legislation to be published in order to properly assess the impact on holiday let owners across the U.K.
Lets just hope the Chancellor has taken on board some of the OTS recommendations....