Furnished holiday lettings

‘(1) The Chancellor of the Exchequer shall, before the publication of the 2009 Pre-Budget Report, have compiled and laid before the House of Commons a report containing an assessment of the impact of—

(a) section 503 of ICTA, and

(b) chapter 6 of part 3 of ITTOIA 2005,

on the liability to tax of commercially-let furnished holiday accommodation.

(2) A Minister of the Crown must, not later than one month after the report has been laid before the House of Commons, make a motion in that House in relation to the report.’.—(Mr. Jeremy Browne.)

Brought up, and read the First time.

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.

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.

Ah.

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.

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.

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.

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.

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?

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.

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.

Before we conclude our consideration of the Bill, may I put on record my thanks to you, Mr. Atkinson, and to Mr. Hood for your stewardship and guidance throughout our debate? May I also ask you, Mr. Atkinson, to pass on our thanks to Sir Nicholas for his temporary assistance during our third sitting?

Let me also thank the Clerks—Mr. Laurence Smyth and his colleagues—as well as the Hansard reporters, the doorkeepers and the police officers for their help in ensuring that the Committee’s business has run smoothly, and for all the help that they have given to members of the Committee. I would also like to thank the representative bodies that have worked with officials, my ministerial colleagues and me, for their help in identifying how the Bill could be improved.

We have enjoyed a smorgasbord of issues, such as white label cigarettes manufactured in eastern Europe; the removal of Japanese knotweed; the taxation of European backwoods, which cropped up on a number of occasions; the striking parallels evident to at least some members of the Committee between tax avoidance legislation and the book of Leviticus; and the recycling facilities in Taunton, which, if I remember correctly, the hon. Member for Taunton invited us all to visit, which was a generous offer indeed. Like others, I, too, congratulate him on shouldering the whole burden of the Bill in the absence of the hon. Member for Twickenham.

The range and depth of our deliberations has been substantial. I express particularly my thanks to the Lord Commissioner of Her Majesty's Treasury, my hon. Friend the Member for Waveney, who is in his constituency today. His shoes have been ably filled by my hon. Friend the Member for Erewash. I would like also to thank my hon. Friends the Members for Hove and for Glasgow, North-West, who have often been a source of much-needed inspiration in our debates.

I would like to thank all my hon. Friends on the Committee for their patience, and Opposition Members of all parties for their constructive and good-natured contributions throughout our procedures. They have helped to ensure that the Bill is better and clearer.

I particularly thank my hon. Friends the Exchequer Secretary, the Economic Secretary, my hon. Friend the Member for Wallasey (Angela Eagle), who is now the Minister of State, Department for Work and Pensions, and my hon. Friend the Member for Burnley (Kitty Ussher) for all the help that they gave while they were in their posts.

I would like to thank all the officials from the Treasury, Revenue and Customs, and other Government Departments, whose help has been invaluable. I am particularly grateful to parliamentary counsel for their work behind the scenes, which is essential to all that we do.

May I also thank you for your stewardship of the Bill, Mr. Atkinson. You have shown wisdom, and, from time to time, patience was a quality that you displayed to the Committee. The same qualities have been shown by your co-Chairman, Mr. Hood. I am sorry that Sir Nicholas is not here to chair the closing sitting. I know that he enjoys it so much.

I would also like to thank the Clerks. The Financial Secretary referred to parliamentary counsel. We do not have such resources when we draft our amendments and so are grateful to the Clerk and the Public Bill Office for their help and support. The Financial Secretary pinched my joke about smorgasbords. I think that the Hansard writers have had to deal with a veritable smorgasbord of technical terms and foreign place names. I would also like to thank the doorkeepers.

I have a particular word of thanks for the representative bodies, because they give Opposition Members enormous help in coming up with ideas and thoughts about how to improve legislation. PricewaterhouseCoopers in particular supported us throughout the process. John Whiting, who has been a source of advice to both sides of the House, is retiring at the end of this month, but his wisdom and counsel will not be lost to the world of tax, as he will move seamlessly to the Chartered Institute of Taxation. We are all grateful for his help.

I am grateful to the ministerial team—the Financial Secretary, the Economic Secretary, and, of course, the Exchequer Secretaries. We have seen a veritable array of Secretaries over the past month. It is ironic that my neighbour, the Exchequer Secretary to the Treasury, the hon. Member for Portsmouth, North, and I will spend a great deal of time together over the next few months debating a range of issues to do with financial services.

I am grateful for the support that I have had from my hon. Friends the Members for South-West Hertfordshire and for Hammersmith and Fulham. It is, of course, the first Finance Bill that my hon. Friend the Member for Hammersmith and Fulham has done from the Front Bench. He has overcome his natural reticence to play a full role in the Committee.

I am also grateful to my backwoodsmen for their service during the course of the Bill, and, of course, to our Whip, the hon. Member for Rochford and Southend, East, who, together with the Lord Commissioner of Her Majesty's Treasury, the hon. Member for Waveney, ensured that the Committee ran to time and harmoniously—until 16.09 on a Thursday. I am conscious that we are not as harmonious today as we have been for most of the other days.

The hon. Member for Taunton has played his customary role of being the sweeper from time to time on the comments that we have made, but today that role was reversed. Perhaps he is auditioning to be the new sage of the Liberal Democrats—the sage of Taunton, perhaps.

This has been an effective Finance Bill scrutiny process. Our task as the Opposition is not just to make political points but to probe and tease out some of the issues behind the Bill. I think that we have done that very well in the sittings that we have had. I look forward to rejoining battle downstairs on Report.

I will be extremely brief—[Hon. Members: “No.”]—unless provoked. I will be going down to Taunton shortly, and if anyone wishes to come and see the recycling facilities with me this evening, I think there is extended opening on a Thursday.

I want to thank you, Mr. Atkinson, and your fellow Chairman for the diligent way in which you have ensured that we kept to the task before us. I also thank the representative bodies that the hon. Member for Fareham mentioned. Opposition parties do not enjoy the benefits of having the apparatus of the state at our disposal, and therefore the assistance that we have from organisations such as PricewaterhouseCoopers, the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales is very helpful in assisting us and our staff to table amendments and new clauses that are technically capable of being debated, and implemented if that is the will of the Committee.

I thank the Ministers for undertaking a sizeable task, which they have undertaken with good humour and considerable application. I thank all members of the Committee. It is a bit like a Big Brother household, apart from the fact that people do not get chucked out—sadly. [Laughter.] Well, perhaps a new feature might be for people to text in—in this new modern era that you are now a part of, Mr. Atkinson—with their views on which members should be expelled if they have not contributed in the right way. We get to know the characters of everyone who serves on the Committee and feel enriched as a result.

Finally, I thank my hon. Friend the Member for Twickenham for his inspiration throughout this process. No wonder he is held in such high esteem by the people of this country. He has been able to contribute to the probing that has been evident from the Liberal Democrats without even having to deliver that many speeches himself. For all those reasons and with a high degree of affection, may I say how much I will miss our deliberations? On that note, unless others wish to contribute, we may feel it is time to go on to other activities this afternoon.

I add my thanks to the Clerks, the Hansard writers, the doorkeepers and the police for keeping us straight in Committee. I also thank all members of the Committee, which has been good-natured. Incredibly for what normally is a fairly boring subject—the Finance Bill—it has been very amusing from time to time. I appreciate how much hard work goes into it. The matters are very complicated and there has been a vast input from all the teams in Committee. My thanks to you all.

Question put and agreed to.

Bill (except clauses 7, 8, 9, 11, 14, 16, 20 and 92), as amended, accordingly to be reported.

Committee rose.