For a lot of British people, owning a holiday home is the pinnacle of aspiration. So many of us dream of that bolthole in the Lake District or on the craggy Cornish Coast.

However, from April 2023, the tax system for holiday homes is changing. At present, owners of second homes in England can avoid paying council tax and apply for small business rates relief by stating their ‘intention’ to let the property out to holidaymakers.

From next year, second homeowners will have to prove holiday homes are being rented out for at least 70 days a year to access small business rates relief. Evidence can be provided in the form of websites and brochures advertising the let, letting details, and receipts. 

Properties will also have to be available to be rented out for 140 days a year to qualify for this relief.

Why the Change? 

In the words of Secretary of State for Levelling Up, Michael Gove: 

“We will not stand by and allow people in privileged positions to abuse the system by unfairly claiming tax relief and leaving local people counting the cost.

The action we are taking will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.”

He has a point. There is plenty of evidence to suggest that many second homeowners are using the original rules as a tax loophole, without ever renting their property out to holidaymakers. Indeed, anyone who has ever been to the UK’s beauty spots out of season can attest to the sheer number of homes standing empty. 

Let’s take Cornwall as an example. Cornwall is one of the most economically deprived counties in the UK, with soaring child poverty rates. At the same time, its house prices have skyrocketed during the pandemic. For local people, this has meant crippling living costs and in some cases being forced out of the villages and towns they call home.

It’s clear that, as a county, it’s in desperate need of well-funded public services to cater for the local people. All this rule change asks is that affluent second homeowners in area’s like this pay into the local economy they benefit from. 

What Could It Mean for the Housing Market?

So, we know why the change is taking place. Now for the bigger question. What does this mean for the housing market as a whole? Are we set to see a sudden influx of second homes on the market in late 2022 as owners look to cut their losses?  

Not quite. There are around, 65,000-holiday lets in England that are currently liable for business rates and around 97% of them have rateable values of up to £12,000. Under current rules, these are eligible for small business rates relief. 

It goes without saying that £12,000 is a substantial amount of money. But for many of those with the wealth to buy a second home, it’s not likely to be enough to induce them to sell up. What’s more, the short-term rental market is still a very attractive proposition for any would-be landlords despite the extra costs. 

Naturally, there will be some owners who baulk at the additional costs and choose to sell up, but we expect them to be in the minority. In fact, what’s much more likely to drive any surge in sales in places like Devon, Cornwall and the Lake District is high demand.

There’s never been a better time to sell in many of England’s top tourist spots. Devon, Cornwall and the Lake District have all seen at least 10% price rises in the last year. It’s partly down to these areas’ increasing popularity as holiday destinations during the pandemic (with foreign travel off the cards for many). And it’s partly down to the widescale adoption of remote working, as many of us realise that some sea air and coastal views are preferable to city living if you’re not constrained by commuting into the office. 

To draw some sort of conclusion, expect to see demand continue to rise in popular holiday destinations and prices to follow suit. However, it’s unlikely that much of this will be driven by the government closing tax loopholes.