Re-Evaluating Tax Changes – The Impact on Holiday Lets and Tourism

As we are at peak holiday season, it is a good time to reflect on the impact of legislation which has been introduced allowing tax premiums to be levied on holiday let businesses in Wales.  

Effective from 1st April 2023, the Welsh Government changed the criteria for short-term rental properties to qualify for business rates. A holiday let must now be made available for 252 days a year and occupied by guests on a commercial basis for 182 days to be eligible.  

Also effective from 1st April 2023, local councils were given the authority to raise council tax premiums on second homes by up to 300%, with Pembrokeshire introducing a 200% premium for second homes in their region.   

This means that if holiday let owners can’t secure the necessary volume of bookings and occupancy, their property will move to council tax and put them at risk of a second home premium.   

While I can recognise that the new rules have been introduced to try and improve the availability of housing in Wales, they’ve ended up penalising the country’s hard-working holiday let businesses as well as local business owners who rely on tourism.  

Despite the relatively small number of holiday lets, they are vital to the Welsh economy, particularly in rural areas, where tourists help to support local businesses, including cafés, coffee shops, pubs and play centres. 

In fact, a report we commissioned with Oxford Economics found that short-term lets contributed £3 billion to Wales’ GDP in 2021 and supported nearly 65,000 jobs. 

Therefore, any impact on holiday lets, given the high demand for them from visitors who are keen to explore Wales’s stunning landscapes, beaches and villages, impacts other businesses in these areas that benefit from visitors’ spending and holiday let owners spending on maintaining their property and preparing it for guests, jeopardising local jobs.  

I pinpoint the real cause of housing supply not meeting demand in Wales with slow housebuilding and the country’s empty homes, which ONS data has revealed to total 102,875. These significantly outnumber holiday lets and contribute very little – if anything – to the economy.  

To rectify this, I propose that taxes for medium to long-term vacant homes are increased, therefore incentivising bringing them back into use. Economic levers could also be pulled to incentivise or assist the conversion of unused and under-used non-residential buildings such as commercial, offices and retail to affordable homes.  

I also support the ringfencing of newly built homes for locals, as well as ensuring they’re put on the market at an affordable price, again through tax incentives or disincentives, for example. 

Moving forward, I strongly believe it is necessary to recognise that holiday lets are small, independent businesses and a key part of the tourism infrastructure.   

They’re more than just properties; they help create jobs, support local business and boost local economies which may be struggling from lack of other industry.  

Here at Sykes, we’re dedicated to supporting our holiday let owners both across Wales and the rest of the UK through any legislative changes so they can navigate any new rules with confidence. 

For more information and advice on holiday letting, visit www.sykescottages.co.uk/letyourcottage. And for more detail on holiday regulations in Wales, see www.sykescottages.co.uk/letyourcottage/advice/article/holiday-let-regulations-in-wales.