Holiday let changes are here but more could be on the way - investors need to be ready

The holiday let scene has been upended and landlords in this space now have to adjust to a drastically different landscape. What may catch some off guard though, is that we’re still due some more dramatic changes later this year.

Since the new tax year started, previously favourable tax perks for furnished holiday lettings have been abolished. Simply put, holiday lets are now being treated in the same way as long-term residential or commercial lets.

Mortgage interest relief will now also be capped at a 20% tax credit, and business asset disposal relief has been scaled back. Meanwhile, owners selling a holiday let will face the standard 24% CGT rate for residential property, and won’t be able to roll over gains into other business assets.

This isn’t to mention all the council tax bills that are set to rise. In England, local authorities can now charge a council tax premium of up to 100% on second homes and reportedly, more than 200 councils across the country plan to utilise their new powers.

All this will need to be budgeted for. Those BTL landlords who stick with their holiday let investments will need to adapt to a dramatically shifted market. But, they won’t have long to adjust before even more changes come to the market.

The prior government confirmed a new planning use class is set to come into play this summer for short-term let properties. Under the plans, a new C%5 use class will be introduced. This will be the “use of a dwellinghouse that is not a sole or main residence for temporary sleeping accommodation for the purpose of holiday, leisure, recreation, business or other travel”.

More recently, Matthew Pennycook, the Planning Minister, suggested Labour was considering implementing the proposal that was first put forward by the Conservatives.

Existing short-term let properties are expected to be automatically transitioned to the new C5 class, so long as they meet the definitions involved. But, new short-term let investments may require planning permissions from local authorities.  A registration scheme and other rules are also being introduced to allow local authorities to better monitor and enforce regulations.

What this all means is that soon, expanding holiday let investors may need to adhere to more stringent rules, and higher taxes at the same time. Still, it may still be worth exploring holiday let opportunities over the coming months. Many existing landlords are likely to sell up, which may push prices downwards.

Yet, there is still plenty of demand for short-term stays among holiday makers. A survey from the Post Office found that around 81% of people in the UK have been on a staycation, and over two-thirds (69%) said they’d be happy to go on holiday in the UK rather than travel abroad.

Trying to progress in a marketplace that’s beset by hiked tax costs and legislative upheavals may be easier said than done though. Which is why it’s important for borrowers to work with lenders who have experience with difficult markets, and who can adapt quickly to dramatic shifts in demand. At Market Financial Solutions, we’re ready for what’s on the horizon with bespoke, and creative tools at our disposal.

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