Estate agents reported a surge in inquiries for second homes this week after the Government said that it would restore tax breaks on holiday lets.
In the past, landlords who let out holiday accommodation could offset costs such as furniture and fittings under rules that allowed the properties to qualify as business assets. These rules also allowed investors to benefit from lower capital gains tax rates when they sold the properties. However, Labour announced last year that holiday lets would no longer qualify for this relief, beginning in April this year. On Tuesday the coalition Government said that it would scrap Labour’s plans, which had not yet been implemented, pending a consultation this summer.
Knight Frank, the estate agency, reported an immediate surge in inquiries for holiday homes after the announcement. Liam Bailey, the head of residential research, said: “The second-homes market has been dead for the past six weeks, particularly in the South West, but we believe that demand will be very strong over the summer as pent-up demand is released.”
Gillian and David Tomkins bought a £124,000 holiday cottage in Snowdonia in 2004. They originally intended to use it for family weekend breaks, but their plans changed when both were made redundant. They put the property up for rent for 40 weeks last year and for an estimated 44 weeks this year.
Gillian said: “We’re not going to be panicking about any changes quite yet because we’ve only got the one holiday let. We just need it to pay for itself so that we can hold on to it. Although, if prices went up as a result of people having to pay more tax, we would have to do the same.”
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She said that the more pressing problem is the rise in VAT from 17.5 per cent to 20 per cent from January next year, which will increase costs. Any changes in the interest rate would also be a problem.
The Treasury says that this summer’s consultation on holiday lets will aim to bring furnished holiday letting rules in line with EU legal requirements “in a way that does not penalise UK businesses”.
Kate Stinchcombe-Gillies, of holidaylettings.co.uk, said: “We hope that any proposed changes to the eligibility criteria for holiday lettings income would strike the right balance between encouraging second homes to be available for self-catering holidays and providing support for those whose income derives mainly from rent.”
The Conservative Party hinted in March that it would reverse Labour’s proposals, estimating that the tax change would affect 120,000 people and businesses. Industry groups estimated that it would put 4,500 jobs at risk.
Aidan Rankin, an economist at the investment consultancy Property Frontiers, said that the almost immediate implementation of the CGT changes had prevented any sudden disposal of assets, which could have caused house prices to fall. Most agents say the buy-to-let property fire sale that was expected in the run-up to the Budget failed to materialise.