Removal of Holiday Let Tax Relief Implications
The Impact of the Abolition of Self Catering Business Rules
May 1, 2009
The withdrawal of tax relief available to operators of self catering properties is likely to have a significant impact on their businesses.
Currently, furnished properties which are rented to the public for a significant portion of the year attract tax relief in the way that many other businesses do. The current change in status seems likely to reclassify these properties as Second Homes. For a lot of these businesses, already struggling in a difficult economic environment, this could be the final straw.
Far from closing a loophole for rich second home owners, this move will destroy the businesses of genuine tourist operations which could be forced to close as these changes make their companies untenable.
When interviewed by Suite101, Graham Tayler, chairman of, WASCO, the Wales Association of Self Catering Operators stated, "This is a disaster for the Self Catering holiday industry. Our members are already seeing a drop in bookings this year as people take fewer holidays, but the proposed changes will drive a significant number of businesses to the wall."
The Effect on Local Housing Markets
The removal of these tax reliefs is delayed until April 2010 and changes in capital gains rules mean that many operators may see it as more prudent to sell properties before the changes take effect. However, this may lead to a glut of holiday cottages, apartments and houses coming onto an already depressed market.
In some areas, the lowering of property prices may be seen as a good thing. In the South West, property prices have the highest ratio to income in the country. This makes it difficult for locals to purchase homes in the place they were brought up.
However, this may prove to be a double-edged sword as the tourist industry brings much needed employment and revenue in these areas. This will be dramatically affected by the loss of tourist trade when the holiday let properties are sold.
Holiday Let Owners may Find it Difficult to Sell their Properties
Some owners will find themselves in an extremely difficult position. Planning permission is often given by local councils on the basis that the building is used specifically as a holiday let. This means that the property is unsellable as a new buyer could neither live in it, nor rent it out for more than a 31-day short-term let.
This may be especially true of the farming community. They have been encouraged to diversify and many have moved into the self catering holiday business, paying out large amounts to convert barns and outbuildings. Now, this rule change leaves them high and dry, with properties on their land which will they will be unable to sell and will be making a loss as a letting business.
There also remains a grey area for businesses who have received grants based on business plans which took the long standing tax relief into account. If the business is no longer viable and the assets are to be sold, do the grants become repayable?
Tourists Will also Suffer
Tourists are also likely to suffer. The effect of these changes will be to significantly reduce the number of holiday lets available in 2010. Those still in operation will be significantly more expensive due to lower supply and higher operating costs. This will make holidays in the UK less attractive and may push people back to Europe, costing the British tourism industry a significant amount.
This move appears to be a reaction to the requirement to extend the current tax regime to properties within the European Economic Area, estimated to cost the Exchequer approximately £15m. The removal of the tax relief in 2010 is expected to raise around £20m, but the long term damage it will do to the tourist industry in Britain could be far in excess of that.
