Concerned that local people are often forced out of the market, the UK government has announced new regulations to handle short-let houses, holiday homes, and second homes. In this article, we outline what those proposed changes are, so buy-to-let property investors can plan accordingly.

The government has officially announced its intention to implement a registration mechanism for houses that are rented out on a short-term basis. This follows recent pronouncements that, beginning in April 2023, councils would be given the authority to charge higher rates of council tax on unoccupied and second homes, and that second homes would need to be rented out for a minimum of 70 days per year before receiving small business rate relief. In addition, Wales is in the process of consulting on a new licensing regime for holiday rentals.

Which tax rules apply to short-term rentals today?

Currently, those who own a second home and want to rent it out to tourists by declaring an “intention to let” for at least 140 days per year are eligible for a reduction in their small business rates. Colliers estimates that a lack of evidence required by homeowners costs local governments £110 million each year in lost revenue.

Although a council tax premium would be required if a house was unoccupied for two years or longer, the local council has the discretion to offer a reduction to owners of empty homes who are not qualified for business rate relief.

What changes can we expect to the tax rules?

As of April 2023, second home owners must provide evidence that they have rented out their homes for at least 70 days and that they are “available” to rent for at least 140 days in order to take advantage of the business rate exemption.

The website or brochure used to market the property, as well as rental records and any receipts the owner can provide, could show that it is suitable for this use and meets the criteria.

Furthermore, the government has stated that it would allow local governments to increase the regular council tax rate by 100% for any property that has been vacant for more than a year, down from the existing maximum of two years. The House of Commons is now debating the second reading of the Levelling-up and Regeneration Bill, which will contain this amendment.

What does the government hope to accomplish with the new rules?

The aim is to have more unoccupied properties put “back into productive use, while raising additional revenue to support local services and keep council tax down for local residents.”

Michael Gove, Secretary of State for Levelling Up, has stated that requiring proof that a house is a legitimate holiday let “will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.”

Having said this, in a recent discussion in the House of Lords, the Minister for Building Safety and Fire, Lord Greenhalgh, said that “96% of second homes pay council tax in full, even though they may use local services only on an occasional basis.” This raises the question of whether the government will actually achieve its stated goals.

Lord Greenhalgh stresses that it is “reasonable” for property owners in the sharing economy who satisfy the present criteria to be exempt from council tax and instead pay business rates.

What other proposals have there been to regulate the short-term let industry in England?

In June 2021, the government made a commitment to consider introducing a “tourist accommodation registration scheme” in England. It is intended that this would be done via the Tourism Recovery Plan, which was subsequently confirmed in 2022 by the announcement of new measures in the Levelling Up and Regeneration Bill.

The necessity for special permits for new holiday rentals is also being discussed at this next public forum. Tim Farron, MP for Westmorland and Lonsdale has suggested a “seven point plan to limit the number of second homes” in addition to his original proposal to double the council tax on vacant second homes beginning in January 2022. He stated that this is intended to help the chronic housing crisis.

What other proposals have there been to regulate the short-term let industry in Wales?

Previously, the Welsh government and Plaid Cymru had agreed to create a statutory licensing mechanism for short-term rentals as part of their Co-operation Agreement.

This is a component of a larger set of policies “to address the negative impact second homes and short-term holiday lets can have on the availability and affordability of housing for local people in our communities.”

A proposed scheme would be able to shed light on the “scale and nature” of visitor accommodation businesses in Wales by providing “a comprehensive database“. The consultation period for the plan is now active and will end on March 17, 2023.

How do short-term rentals affect local neighbourhoods?

The hospitality and rental sectors have grown in recent years, in part due to the expanding segment of short-term lets. Concerns include their effect on local property markets, where an inflow of investors in holiday lets may result in fewer long-term rentals available, as well as compliance with tax and health and safety rules.

Since “in some areas where tourism is incredibly important, it is a great boost to the economy, and in others it can result in the hollowing out of a particular area” the effects of any law would be hard to determine, Lord Greenhalgh said.

What regulations for short-term lets are in place for other parts of the UK?

Northern Ireland’s tourist accommodations must now be certified in order to accept guests.

To supplement its current “control areas” and “help manage high concentrations of secondary letting”, Scotland is implementing a licensing regime for short-term lets.