What can holiday let landlords expect from the new Labour government? Below, we review the latest changes for short-term lets.
Toward the end of the last Conservative government, it became clear that a crackdown on short-term lets was inevitable. As housing ministers blamed the holiday let sector for a lack of rental supply, the government announced a number of measures to put pressure on the booming market.
It’s no surprise that Labour intends to finish what the Conservatives started. Below, we look at the changes Labour has already made and what’s to come for the sector.
The Furnished Holiday Lettings (FHL) Tax Regime
Jeremy Hunt announced plans to abolish FHL tax relief in this year’s Spring Budget but narrowly missed the parliamentary approval deadline when Rishi Sunak called the General Election.
However, Labour has already set this measure in motion. The government has allowed HM Revenue and Customs to issue a policy paper confirming the end of the FHL regime in April 2025.
From April, holiday lets become much the same as buy to let, with restricted mortgage interest relief at the basic rate of income tax. Furthermore, any capital gains or income from a short-term let will now form part of a landlord’s property business. This means higher and additional rate taxpayers will pay 24% Capital Gains Tax (CGT) on the profits from the sale of a holiday let above £3,000 if Labour doesn’t increase CGT further.
Planning permission from local councils
To further solidify their clampdown on the holiday let sector, Labour will also continue with plans to give more power to local councils, originally announced by Michael Gove in February.
Labour’s plans will see local councils in England assign areas where short-term lets will need planning approval. Landlords with existing buy to lets could need to apply for a new planning permission class to turn the property into a holiday let.
What’s more, Labour will also follow through with plans to introduce a compulsory national register for short-term lets to professionalise the sector. This register will also help to monitor the number of holiday lets throughout England.
What this means for your holiday let mortgage
Of course, an increase in tough legislation will put more pressure on landlords and property investors within this market. However, despite these upcoming changes, holiday let properties continue to be a fantastic, high-yielding asset to have within your portfolio.
As of Q2 2024, MFB data shows that holiday let properties generated an average yield of 9.90%, up from 7.92% in Q1. This is over 3% higher than yields on standard buy to let properties, at 6.71% in Q2.
What’s more, with mortgage rates softening across all areas, we expect to see holiday let rates continue to reduce. This will not only mean lower mortgage costs for borrowers but even more competitive rental yields.
It’s fair to say that the biggest challenge currently facing property investors is the upcoming legislation changes as Labour gets settled into their new government. From standard buy to let to the short-term lettings sector, several changes are coming in that will bring their own challenges for landlords to mitigate.
However, the significant demand for rental properties refuses to dwindle as supply very slowly returns to the market. As such, property investors can rest assured that the benefits of these property investment types are still worthwhile.
To discuss your holiday let mortgages, get in touch with our experts on 0345 345 6788 or submit an enquiry here.
