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Consultation over short term holiday let planning restrictions

By RJP LLP on 11 May 2023

Changes to the taxation of buy-to-let property, such as the reduction in mortgage interest relief and the increase in stamp duty, have made residential letting less attractive. However  one area of the sector has remained tax advantaged; short-term, furnished holiday lets still offer interesting tax breaks for property investors who meet the qualifying criteria. The restrictions in claiming mortgage interest relief and other expenses do not apply to holiday lets which have been booming as a result. Hamptons the estate agents reported in the Financial Times that 2,426 companies were established to hold holiday homes last year, which is a 310% increase in 6 years.

Buying holiday properties in seaside towns and rural areas has however had a negative impact on local residents, many of whom do not have the financial means to afford now inflated prices. The result has been a great deal of negativity towards second home owners, as locals are being priced out of their local market and traditional communities are dying out outside of the peak tourism months. In some areas, whole streets have become second homes and holiday let properties, so this negativity is to be expected.

Since property is still regarded as a sound investment, it is difficult to make change happen. The government is proposing to change the current rules as a way to limit second home ownership in the future. They are suggesting that new second home owners in England should have to obtain planning permission from the local council in the area if they want to use their property as a short term holiday let. This will provide councils with an opportunity  to decide how they want their local areas to evolve and whether they wish to encourage some second home ownership because it undoubtably does help to regenerate an area, or if they want to curb its growth to make way for locals. The ruling would only apply in England and currently excludes Wales, Scotland and Northern Ireland, but this could change. It would not affect people who have a second home for personal use but do not rent it out.

If you would like advice on the tax implications of owning a second home either for personal use or as an investment, contact us via partners@rjp.co.uk.

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