The new UK government has reintroduced plans to abolish the furnished holiday lettings tax regime after the initial proposal failed to make it through parliament prior to July’s election. Click here for further details of the policy.
Since then, the plans have been roundly criticised by industry bodies, including the Professional Association of Self-Caterers (PASC UK), the UK Short-Term Accommodation Association (STAA), and the Association of Scotland’s Self-Caterers (ASSC). Click here to read their reaction.
Here, HCH Columnist Richard Vaughton comments on the news which many hoped had been kicked into the long grass following the change of government.
By Richard Vaughton
Both main parties [Labour and Conservative] need to understand that the UK is full of small and diverse businesses which are the lifeblood of the hospitality economy. Both parties see short-term rental businesses as an untapped well of tax. Due to housing shortages, they also hope to reduce holiday rentals through this action.
But tax income can only happen, of course, if holiday homes don’t get sold. If they do get sold, who can afford to buy them? With a decent percentage of owners also wanting to use their holiday homes, there are other options than residential letting. New regulations are also less attractive in this sector, as illustrated by second home purchases being at their lowest proportion since 2016, when the 3% stamp duty surcharge for additional dwellings was introduced.
A growth industry
According to the Sykes Staycation Index 2023, 82% of Brits holidayed at home in 2022, with 30% of the budget spent on accommodation, and domestic travel boosting the economy by £28 billion. This excludes inbound visitors and a total hospitality industry of £100b+, with some metrics indicating £200b post-pandemic. Not insignificant – and an opportunity.
Research is key
This situation is complex and requires significant government research and analysis before action is taken. It affects people’s pensions and livelihoods – from urban apartments to smallholdings and farms, not forgetting the hundreds of thousands of workers and businesses comprising the other 70% of domestic holiday spend. Already, we see increased travel abroad (and complaints there) as the UK becomes too expensive, and this action may accelerate that trend. This looks like something other than a progressive growth approach that incentivises enterprise with reward.
Disruption
If you check the UK government website, there are just shy of 10,000 hotels. With room sizes shrinking yearly to sub 20m², these are not places for families to share, children or pets to enjoy, or for those on tight budgets.
Uber disrupted taxis, Amazon disrupted shopping, and similarly, rentals provide a better experience and alternative approach, and fuel a primarily hidden but sizeable economy. Even hotels have entered the short-term rentals market after recognising a need.
Tax planning
Tax experts are undoubtedly devising new approaches for the industry. Necessity is the mother of invention, and we can expect a new model or two to arise depending on an owner’s situation as the government focuses on removing the current benefits. However, this may be a road too far for those more traditional, non-pure investment owners to continue.
Accurate data is vital
Holiday Cottage Handbook and PASC UK quickly educated micro-businesses, engaging thousands of owners when the previous chancellor announced this radical change in the spring budget. The new government would be well advised to discuss this in detail and understand the granularity of ownership and holiday offerings in a complex and fragmented industry which is hard to manage at the coalface and employs thousands. Certainly, registration and industry monitoring are welcomed, and rational decisions can be made once the data is analysed. Before that, making important decisions on ambiguous data could damage a thriving domestic and inbound hospitality and travel economy.
Richard Vaughton from Yes Consulting is a Holiday Cottage Handbook Columnist.
Richard founded rental technology business Rentivo, which was acquired by Situ. He also exited two property management companies with close to 1,000 rentals. Richard currently works as an advisor for a host of businesses in the short-term rentals world, helping them focus on expansion, mergers and acquisitions, and technology efficiencies.
Now based in the UK, Richard has worked in the Middle East, Italy, and Switzerland during his career, encompassing several industries. He was previously the CEO of a Finnish biotech, service, and diagnostic supply company.
Contact Richard via email: richard@yes.consulting.
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