UK Budget Restricts Short-Term Rental Tax Breaks - CoStar

Excerpt from CoStar

The latest U.K. budget provides little good news to hoteliers, who hoped for an overhaul of business rates and other benefits, but it did restrict tax breaks for second-home owners who are listing properties on short-term rental platforms such as Airbnb.

The United Kingdom government has outlined its 2024 budget, which aims in part to tackle the cost-of-living crisis but does not address many of the concerns raised by hoteliers.

The pressure for the delivery of tax cuts is heightened in this budget due to the imminence of a general election, which must be held on or before Jan. 28, 2025, but is more likely to be held in 2024.

U.K. Chancellor of the Exchequer Jeremy Hunt said jobs are being created by the government’s economic policies.

In the latest budget, the government announced a two-pence cut in every pound in national insurance contributions — which Hunt said are worth on average £450 ($571) per person per year — and an increase in air passenger duty for business-class air flights. Hunt said he also will cut capital gains taxes, which are charged on profits from selling properties.

Hoteliers have taken notice of the decision to restrict tax breaks that incentivize owners of second homes to rent those homes on short-term rental platforms such as Airbnb.

“At present, furnished holiday lettings benefit from a more generous tax regime, allowing them full relief for interest expenses. For investment properties, this relief is restricted,” said Kersten Muller, managing director for real estate at business advisory Alvarez & Marsal, in an email sent to Hotel News Now.

Muller questioned whether the reduction in capital gains tax will be another disincentive for listing a property as a short-term rental. One hope is that these properties will return to the general rental pool, where there is high demand.

“There is a concern that the [capital gains tax] changes increase costs and, even if the holiday homes are coming to the long-term rental market. ... The reduction in the higher rate of CGT on residential property is a partial sweetener for existing investors and second homeowners. It remains to be seen whether this encourages current owners to sell up,” he said.

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