Tax rules for holiday lets should be abolished, a government advisory body has recommended.

The independent Office of Tax Simplification (OTS) says ministers need to look at whether separate tax regulations for holiday homes are worthwhile.

Currently, around 127,000 property ‘businesses’ owned by individuals benefit from tax relief on costs, including interest, and a reduced capital gains tax bill when they sell.

“The OTS recommends that the government consider whether there is continuing benefit to the UK in having a separate tax regime for furnished holiday lettings,” a new OTS policy paper says.

If the government doesn’t want to follow this advice and abandon separate tax rules for holiday lets, OTS says, then it should at least restrict it to UK properties and not allow owners to live in the homes.

Rising quickly

The Government is considering introducing a licensing scheme with physical checks for short-term holiday let premises in England.

Short-term lets in tourist hotspots are on the increase, and many agents are now calling for regulation of the sector, according to Propertymark. More than 75% of agents in holiday areas report that lets for short periods are rising quickly, and are increasingly popular since the Covid pandemic.

Propertymark says that governments across the UK need to find better ways to collect data on the use and location of short-term lets and holiday homes in order to target their approach effectively.

The rise in short-term lets impacts both the sales and lettings market in different ways, but lettings agents overwhelmingly agree that it will negatively impact the private rented sector.