Northumberland council has refused owners consent to convert their short-term holiday let cottages into permanent private residences.

At a time when the Government introduces measures to release more holiday accommodation for longer term letting, it would seem ironic that a council would be doing the exact opposite. But strange as it may seem, that’s exactly what is happening in Northumberland.

The cottages in question form part of a caravan site in Morpeth, which is currently restricted to holiday let use only as part of a legacy planning approval. However, the owners desire to convert them to permanent homes has been refused permission by the councillors on the grounds that it would reduce tourist amenities.

According to a report in the Northumberland Gazette, the owner Glen Gey wanted the option to have the cottages designated as permanent homes, at least potentially, even if they were to continue to be let on a short-term basis. He argues the holiday let business there is “only marginally profitable” and having them designated as permanent dwellings would open the gate to potential borrowings.

Fahy told the planning authority reported by the Northumberland Gazette:

“The site is, and has always been, a brownfield site. It is outside the greenbelt in the Northumberland Local Plan. It is our only source of income. The cottages are built on land attached to our own garden, and we have no intention of selling them off for a profit.”

Fahy claims the income from the holiday lets is minimal at £13,000 to £19,000 per year and barely enough to support them at minimum wage level. Two of the councillors on the planning committee agreed that the business was not viable at that level and the change be approved, but were outvoted.

Holiday let changes

Last week new rules for short-term holiday lets in England were announced in the Spring Budget with the aim of reducing the numbers which are said to have grown “out of control”. In many holiday destinations and seaside towns there is growing concern about an “explosion” in the number of houses being used as holiday accommodation, making it difficult for locals and seasonal workers to secure longer term accommodation.

Recent years have seen increasing numbers of owners with properties in desirable holiday locations turning their homes – many as second homes, but some as long term buy to let businesses – into short-term only Airbnb style lets. Internet platforms such as Airbnb and HolidayCottages.com have enabled owners to participate in what has become a lucrative business and for some, a better alternative to long-term buy to lets in terms of after tax earnings.

The pandemic caused a boom in stay at home “staycation” holidays, which has persisted into the austerity of the cost-of-living crisis of today, with many people opting for last minute short-term breaks at home, rather than undergoing the stress and costs of fly away holidays.

An unfavourable buy to let tax regime

Many landlords have participated in the short-term letting business simply because of the unfavourable tax treatments they have received following the introduction of the Section 24 tax changes for traditional buy-to-lets since 2015. 

Holiday let businesses had, until the recent announcement, a whole host of favourable tax advantages, most of which will be lost to these holiday let businesses after April 2025. Here are the tax concessions being lost:

• All interest on borrowings were fully deductible against taxable profits
• There were various capital gains tax reliefs. These include business asset disposal relief at 10% on sale and the ability to rollover the relief to another business or use the gifts hold-over relief
• There were capital allowances allow tax relief for fixtures in the property
• Profits gained from FHLs were treated as relevant earnings for pension purposes
• Income from a FHL which is held jointly by a married couple or civil partners was not applied to the default 50:50 split for income tax purposes

The government’s argument is that, although registered holiday lets and second homes represent a small proportion of the whole letting market in England, they have high impact on some tourist destinations. Only around £26,000 short term lettings exist in England compared to around 19% of all UK households in private rented accommodation. About 45% of these live in a home with a BTL mortgage, according to the bank of England. It amounts to about £300 billion of outstanding UK mortgage debt.

The new tax regime after April 2025 will put holiday lets on an equal footing with the far less favourable tax regime applied to long-term BTL lettings businesses. The change could make many holidays let businesses unviable, resulting in more homes coming onto the sales market or back to long-term lets.

A question mark over holiday let businesses

Existing short-term letting businesses are to be automatically reclassified into a new use class and will therefore not require any planning permissions. This would not preclude homeowners from letting out their own home for up to 90 nights per year without having to obtain planning permission. 

Although there have been suggestions put forward, the government so far has not commented on concessions for the larger scale holiday let businesses. That’s as opposed to second home owner lets or those who let just one or two holiday homes. Arguably, larger operations are run as substantial businesses with considerable running costs in terms of the inputs of labour needed, so could or should they be classed as genuine business operations? 

When the Chancellor of the Exchequer makes the Budget statement in the House of Commons, he or she outlines the state of the economy and the government's proposed changes to taxation. Subsequently, these proposals are debated in the House of Commons prior to implementation through the Finance Bill, so things can still change until then.

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