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Residential Rental Market - More Pain and The Alternative Furnished Holiday Let Solution

Paul Webster, Director in the Private Client Tax team at Kreston Reeves, comments

Just when you thought there was a let-up in the Government’s apparent war against landlords, the Renters Reform Bill 2022 is now lurking in the shadows. The Bill looks to ban Section 21 ‘no fault evictions’ and introduce measures to ensure that properties are maintained to a certain standard.

Whilst it is of the utmost importance that all tenants have the right to live in clean and safe accommodation, without being evicted for no good reason, it is envisaged that more landlords will simply look to cease letting activities altogether, rather than continue operating under even tighter rules. It is anticipated that gaining possession of rented properties to sell or move into will become fraught with difficulties.

So, what are the alternatives? Well, if your residential let is in an area that is attractive to tourists or short-term business visitors, you could serve notice now and relaunch the property as a furnished holiday let (FHL). There are numerous advantages in doing so, five of which are highlighted below.

Business asset disposal relief
Formerly known as ‘Entrepreneurs Relief’, this allows FHL landlords to take advantage of a 10% rate of tax on £1,000,000 worth of gains in their lifetime.

If the property has qualified as an FHL for two years, you can take advantage of this lower rate instead of paying 18% (basic rate) or 28% (higher and additional rate) Capital Gains Tax (CGT) on the sale of a property that has been let on a regular AST up to the date of sale.

Those landlords with properties in locations popular with short-term visitors, such as UK seaside resorts, may wish to consider reviewing whether an FHL would be feasible.

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