The latest report from an influential government body calls for landlords letting out holiday ‘homes’ to pay higher taxes.

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HM Treasury’s Office for Tax Simplification whose reports are handed directly to the Chancellor, the Bank of England and numerous financial sector experts, says short term holiday lettings are treated far more favourably tax wise than home owner’s income. It says landlords operating holiday lets are allowed tax relief against costs which includes mortgage interest and a possible Capital Gains Tax reduction when selling properties.  

The OTS says there are around 127,000 furnished holiday lettings businesses owned by landlords declared to HMRC in personal tax returns, this also includes 17,000 properties outside of the UK in the EEC.

The report says: “The widely held view of respondents was that this represents a relatively small core of people running a substantial short term letting business, and a long tail of second-home owners renting one property.”

However the OTS uncompromisingly says: “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. The OTS recognises that removing the furnished holiday lettings regime could put pressure on the boundary between whether a taxpayer has a property business or a trade, as many would currently use that regime as a proxy for many of the benefits of the trading rules.”

Obviously the recommendations ‘coincide’ with the oncoming government’s Autumn budget (November 17th) and if the Chancellor agrees and introduces the call then the OTS proposes:

“….that the government consider whether certain property letting activities subject to Income Tax should be treated as trading and whether it would be appropriate to introduce a statutory … test to define when a property trading business is being carried on.”

The Daily Telegraph reports that under current tax rules an owner earning income from holiday lets of £24,000 a year pays around £5,775 in tax assuming the property is jointly owned by a couple who are higher rate taxpayers, but under the new rule they would have to ‘stump up’ £7,687.