2023 Tax Changes for Holiday Let Landlords

Over the last couple of years, the number of properties used as holiday lets has grown across the UK. While many landlords have enjoyed the opportunity of renting property to holidaymakers, the UK government has made steps to tighten the loop on tax. Which might raise questions amongst your clients about the ongoing profitability of this sector.

Find out the specifics of how the industry has grown along with the motivations for change and geographical nuances of what’s on the horizon.

The proportion of holiday lets has grown in the UK over recent years

In 2020, the Covid lockdown was an initial driving force in the rise of popularity for UK holiday rentals. Taking holidays a little closer to home was the only option for many and the UK experienced a staycation boom. Holiday let landlords were able to take advantage of the circumstances and in England alone, the number of homes used as holiday lets has increased by 40% between 2018 and 2021.

Now that life is back to normal, many domestic holidaymakers are continuing to book holidays within the UK, itself. Some have suggested the cost-of-living crisis is a driver for shorter, local breaks meaning that their popularity is likely to continue.

There are tax changes due to hit holiday lets in the near future

Towards the end of last year, voices in the holiday lets industry raised concerns about an impending tax burden on holiday let properties. The trade press has described the changes in taxation, coming from various devolved administrations as well as the UK government itself, as being “confused and complicated.”

Nuances in taxation across the UK

In general, across the UK we’re seeing changes in taxation that will ultimately make it more expensive for holiday let landlords to be able to run their businesses. There are subtle differences in the changes being implemented across the four nations of the UK that you should be aware of. Overall, there is no denying that we are set to see taxation rising for this type of holiday property across most of the UK.

England

From April 2023, second homes in England will need to be rented out for a minimum of 70 days per year to access small business rate relief, rather than paying council tax. Now, following the late Queen's Speech in May 2022, the government has announced that councils will also be granted powers to impose higher rates of council tax on empty and second homes that don’t meet the minimum requirement to be classed as a holiday let.

Wales

Like, England, Welsh holiday properties are also required to meet the minimum rental threshold of being available to letting for at least 140 days in total over current and previous tax years and actually let out for at least 70 days in the last 12 months.

Holiday lets that failed to be available over the minimum required nights during 2020-21, largely because of lockdown restrictions, and are liable for hefty retrospective council tax bills, as reported by the BBC in November last year.

Scotland

In Scotland, the rules are slightly different, dating back to 2021, with the introduction of a licensing scheme for short-term lets in specific control areas. Holiday let owners are required to apply for a license from their local council – there are four different forms of license available for short-term lets. The one that affects holiday is described as a “Secondary Letting License” which means ''letting a property where you do not normally live, for example a second home or holiday let.''

The use of control areas in the Scottish system is to prevent too many ''Airbnb-style rentals concentrating in specific localities.'' Recently, the original deadline for properties to apply for one of these new licenses was postponed by 6 months from 31^st of March 2023 to the 1^st of October 2023.

Northern Ireland

Currently in Northern Ireland, tourist accommodation cannot be provided without a valid certificate that is issued by the Northern Ireland Tourist Board (NITB), rather than a local council. There aren’t any immediate changes to taxation planned for this locality.

What this means for long-term BTL Landlords and Brokers

While landlords in the holiday let space might have enjoyed periods of strong interest with local staycations, the tightening of regulations coupled with increased taxation may cause some concern. Given some of the issues making the headlines about the supply of UK housing and empty second homes, it shouldn’t come as too much of a surprise to see the UK government moving in this direction.

With UK staycations predicted to continue in popularity into 2023, there will still be a strong demand for holiday let properties across the UK this coming year. While some of the tax changes for holiday and short term let landlords will be a challenge, there is clearly still a buoyant market to operate in this coming year.

For landlords who operate long-term lets, the changes to the rules will help make the landscape fairer. However, there are still other concerns such as the increase in  capital gains tax and stamp duty. If you have a large proportion of both long and short-term letting landlords on your books, we recommend that you have an open conversation with your clients about these changes and what they mean for their business in 2023.

‘’We think that while some of these changes mean costs are rising for holiday let landlords, the continued interest in the staycation holiday market also means there are lots of opportunities for growth. With so many factors to consider, you should be reminding landlords to take full advantage of working with yourselves, mortgage brokers as well as working closely with accountants, tax advisors and local councils to build an accurate picture of what the market’s future holds.’’ Sara Palmer, Distribution Director.