Mr.
Jeremy Browne: I beg to move, That the clause be read a
Second time.
I stand in
yet again for my hon. Friend the Member for Twickenham, who is busy
advising any politician who wishes to listen on the right way forward
for the national economy and indeed the global economy. I am grateful
to have the opportunity to lead on some of these matters in his
stead. The
subject of new clause 9 is furnished holiday lettings. It is a subject
that has probably been raised by constituents and other interested
parties with a number of members of the Committee. Having said that, I
suppose that I have a particular interest because I represent a
constituency in south-west England and the type of properties that we
are discussing in new clause 9 are more typically found in that part of
the country than in any other part of the country, or so I am led to
believe. New
clause 9 is widely drawn. It simply requires the Chancellor to publish
a report before the pre-Budget report that would discuss the tax
situation of commercially-let furnished holiday accommodation. The
Government would then be obliged to arrange for that report to be
debated in the House of Commons. I am seeking to draw the Government
out on the issue and to enable Parliament to discuss it in a more
thorough
fashion. 3.45
pm Part
of my reason for doing that is the amount of legislation affected by
the measure. The people who assisted me found at least seven separate
items of legislation that would need to be amended, and there may be
others. I have sought to avoid the pitfall of trying to make all of
those changes in a way that may not be wholly accurate. Instead, I have
asked the Government to look at the issue afresh.
I will start
with the background and then get on to the nub of what is not a
particularly complicated issue. A furnished holiday letting is a
letting where the property is furnished and the letting meets three
qualifying tests. The first is that it is available for holiday letting
to the public on a commercial basis for 140 days or more during a
financial year—four to five months. A person cannot just let a
property out to a friend for a week or a fortnight in August; it needs
to be for an extended period. It may be that they live in, for example,
a cottage by the seaside in Devon during the winter, but derive revenue
from letting the cottage out from April to September, when the demand
is
greatest. The
second criterion is that the property has to be let commercially for 70
days or more—so it has to be available for 140 days or more and
let for 70 days or more. The third criterion is that it is not occupied
for more than 31 days by the same person in any period of seven months.
We are not talking about a property with
a long-term rental arrangement with one party. That one-month period
seems reasonable. Anything beyond that ceases to be a conventional
holiday letting. That condition ensures that long-term lets do not
qualify. In the case of multiple units, such as holiday park cabins,
only the first and the third rule—available for 140 days or more
and not let to the same individual for more than 31 days—need to
be met by each unit. A number of
benefits accrue from having those arrangements for furnished holiday
letting. The first is that people who own that category of property can
qualify for capital allowances—for the cost of the furniture and
fixtures—for which they would not otherwise qualify, and they
can offset losses against their overall income and receive various tax
reliefs for which they might not otherwise qualify.
The reason
that I have brought the matter to the attention of the Committee now is
that in the Budget the Chancellor announced that the current
rules—the ones that I have just described—are
incompatible with EU
law.
Mr.
Browne: I have a feeling that this afternoon is going to
stretch on a bit longer than we might have anticipated.
The
Chancellor said that the current rules will have to be abolished. The
special tax treatment I have just described will end on 5 April 2010.
From then on, furnished holiday lettings will be treated the same as
other property investment. At the moment, they are treated as trade
property to allow them to qualify for the business and capital
allowance reliefs that I have just mentioned. For the next year, the
furnished holiday letting rules will be extended to the EEA. The
Treasury is predicted to gain, I am told, in the region of £20
million from the abolition.
In the
south-west, the region containing my constituency, furnished holiday
let properties accounted for £574 million of revenue—some
16 per cent. of all visitor spending in the region. Self-catering
visitors, I am told, often stay longer and spend more than those
staying at hotels. The sector is therefore seriously important, not
just to the people who have such properties, but to the wider economy
and community in parts of the country that are heavily reliant on
tourist income.
The
Chancellor said that the repeal was necessary because the furnished
holiday lettings rule only applied to the UK and therefore breached EU
law. However, in the technical note published on the day of the Budget,
HMRC
said: “This
difference may not be compliant with European
law.” I
emphasise “may not”, so there is some doubt about whether
the Government are obliged to go down this path, as was claimed in the
Budget.
I leave the
Minister, and anyone who wishes to contribute, with the following
questions. First, can the Minister tell us whether the current rules
are against EU law, or whether the revenue raised is of passing
assistance to the Government but they are not obliged to adopt the new
arrangements from 5 April 2010? That is a crucial point on which there
is an absence of absolute clarity. Secondly, what will extending the
rules to the European economic area cost for the next year? That too is
a legitimate question.
Thirdly,
why did the Government announce the measure in the Budget, without any
advance consultation? That point has been made to me by a number of
people. It was sprung on them and the first that they knew about it was
when they read the financial supplement pages of national newspapers.
There had not been any attempt to assess the impact on that part of the
economy or, as I said, on the wider tourism industry in parts of the
country such as the south-west of
England. Fourthly,
I am told that it has been reported in the Western Morning News
that the Department for Culture, Media and Sport was not consulted by
the Treasury on the changes. If that was the case, that would represent
a deficient piece of government and a lack of joined-up thinking, to
use the accepted jargon. The DCMS wants to promote tourism and
opportunities for people to visit parts of the country where there are
attractions that VisitBritain and others are seeking to promote, rather
than go on foreign holidays, for example. If the Treasury is bringing
in tax rules that run contrary to the efforts of another Department, it
seems reasonable that those two Departments ought to speak to each
other. Finally,
can the Minister say why the legislation to repeal the rules is not
contained in the Finance Bill? To put it another way, why have I had to
table new clause 9 at all? A lot of people who are affected by the
changes would like to think that those changes, if they were to be
passed, had gone through the whole period of scrutiny to which we
subject tax law in Committee and through other procedures in the
House. I
was keen to make all those points on what is an important matter for
the individuals concerned, but also for our wider economy and for the
tourism industry, in some parts of the country in particular. As new
clause 9 only asks the Government to produce a report—an impact
assessment on the changes and on what needs to be done—they
should not have great difficulty with it. I look forward to the
Minister’s
response.
Mr.
Gauke: The new clause is relates to an important subject
and it is right that we debate it, but I fear that in the time
available we are not going to be able to do it justice. I have a
lengthy speech prepared, but the Committee will be pleased to know that
I shall not deliver
it. I
echo all the questions asked by the hon. Member for Taunton. In
particular, it is striking if the Treasury did not consult the DCMS. I
would be interested to know what assessment the Treasury or the
Government as a whole have made of the impact that the measures would
have on rural and tourist communities, both in the long term, if there
is to be a reduction in the availability of furnished holiday lettings,
and in the short term, if there is going to be an impact on the housing
market in some of those
areas. I
should declare an interest as someone who has enjoyed many
self-catering holidays in furnished holiday lettings in the UK,
frequently in the south-west of England, but last year in south
Pembrokeshire. The proposals may well have an impact on holidaymakers,
property owners and rural communities
alike. I
hope that we have an opportunity to return to the issue, to debate it
at greater length, but anything that the Minister can say now would be
of great
interest.
Mr.
Bailey: I do not intend to speak on the new
clause—I am not sure whether the hon. Member for Taunton intend
to press it to a vote—but I bring to the
notice of the Committee that I have an interest, which is declared in
the Register of Members’ Interests, although it is not in the
constituency of the hon. Member for
Taunton.
The
Financial Secretary to the Treasury (Mr. Stephen
Timms): I am delighted to have a chance to contribute
under your chairmanship, Mr. Atkinson, in what is likely to
be the final substantive debate of the Committee.
We are
dealing with an important topic. Landlords are normally taxed on
property rent or income under the separate property income rules. Under
the furnished holiday letting rules, however, landlords of furnished
holiday properties in the UK, if they meet certain qualifying
conditions, as set out by the hon. Member for Taunton, are treated for
tax purposes on the basis that they are trading. That means that they
are subject to a different set of tax rules. Other landlords of
residential properties may well be eligible for different tax reliefs,
for example more flexible loss relief, which is probably the most
important benefit, capital allowances, certain capital gains tax
reliefs and relevant earnings treatment for pension purposes. However,
landlords with income from furnished holiday accommodation elsewhere in
the EEA have not been treated in the same way as landlords with
furnished holiday accommodation situated in the UK. They are instead
treated under those property income rules in the same way as landlords
of other types of UK and overseas property. Preferential treatment of
furnished holiday lets as a trade for tax purposes has been limited to
the
UK. The
difference in treatment may not comply with European law. One can only
surmise what a court might ultimately determine, but our conclusion was
that we had a choice either to extend the preferential treatment tax
treatment to those who invest in European properties that meet the
requirements, or to withdraw it for everybody. We looked at the issue
very carefully, in particular in the light of our objective to have a
thriving UK tourism industry and thriving rural economies. If we wished
to maintain furnished holiday letting rules for UK accommodation, it
was likely to be necessary to extend them to properties elsewhere in
the
EEA.
Mr.
Bone: The Financial Secretary said that other parts of the
EEA do not have the rules that we have. Does the financial Secretary
know whether that is by chance? Do nation states just happen not to
have chosen the way that we have
chosen?
Mr.
Timms: My point was that UK tax rules do not apply to
people who have furnished holiday homes in other parts of the EEA. They
do not benefit from the somewhat more generous rules; only those who
have such property in the UK benefit. That is why we needed to consider
the matter. If we had chosen to extend the benefits to everybody who
owns furnished holiday accommodation elsewhere in the EEA, we would be
giving more tax relief to the growing number of UK landlords with
holiday accommodation abroad. The effect of that would have been to
impose an increased cost on all UK taxpayers, with tax treatment in the
UK encouraging investment in other countries’ holiday markets.
That is an initiative that would be unlikely to find much favour in the
House. Beyond
that, there is a question whether the rules as they stand are still
fair. Many residential landlords provide services and undertake
activities similar to those
landlords who are able to avail themselves of the furnished holiday
lettings tax regime, but they cannot qualify for the same tax relief
because they do not meet all the conditions. That raised another
question about fairness in competition. We made the announcement we did
because the regime would neither be supporting the UK tourism industry
nor ensuring fair and equitable treatment for residential landlords. We
left some time, however, for landlords to adjust to the change. As the
hon. Member for Taunton rightly has said, change will take effect in
2010 and will be legislated for in next year’s Finance
Bill. The
hon. Gentleman queried why there was no advance consultation. Having
made the announcement in the Budget, we will publish draft legislation
and an impact assessment at the pre-Budget report, before the
introduction of the measure in Finance Bill 2010. We will be happy to
consider any comments on the legislation at that time, so there will be
an opportunity for
consultation. The
expansion of the relief to the whole of the European economic area
would roughly double the cost from £15 million to £30
million per year, and one can envisage the costs of the European
element growing faster than those of the UK element. We will publish
the impact assessment, albeit at the PBR rather than, as the new clause
suggests, ahead of it. I hope that the hon. Gentleman accepts that
there will be time for discussion and that the aim of the new clause
will be delivered by the steps that I have
described. 4
pm
Mr.
Jeremy Browne: I am grateful for the Minister’s
typically considered, thorough and courteous response. I had toyed with
idea of pressing for a Division to allow members of the Committee to
reflect the concerns that have been expressed to me on behalf of those
who have been adversely affected by the changes. However, as the
Minister made an effort to say that there will be greater consultation
and an impact assessment, it would be churlish to question his
commitment to that.
I hope that
that exercise will be undertaken with an understanding that there are
individuals whose livelihoods are severely affected by the changes. It
is not a mere technical matter; some people rely on the income that
they receive from holiday letting. I hope that the Minister realises
the impact on such individuals and on communities across the
UK—particularly, as I have said, in the south-west of
England—who are worried that they may lose crucial tourism
revenue as a result of the changes, especially during the
summer.
In the light
of the Minister’s generous remarks, I beg to ask leave to
withdraw the
clause. Clause,
by leave, withdrawn.
Clauses
125 and 126 ordered to stand part of the
Bill.
Question
proposed, That the Chairman do report the Bill (except clauses 7,
8, 9, 11, 14, 16, 20 and 92), as amended, to the
House.
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