Holiday Homes – The Likely Impact of the New UK Tax Threat

In other words, the furnished holiday property sector is an extremely important part of the tourism industry in the region and has a pivotal role in the local economy. In fact, South West Tourism estimate that visitors to furnished holiday homes spend an average of £302 each. So assuming that each property is let for 16 weeks a year, this represents income of £442 million a year, according to the Bishop Fleming projections.The UK government has recently announced that it plans to remove tax relief for the providers of furnished holiday lettings on income tax, capital gains tax, inheritance tax and pension contributions. This is a threat that will also affect owners of second homes.So what is the likely impact of this new tax threat?The owner of a second home for own family use is usually motivated by a number of factors and has a strong emotional connection with the second home and the lifestyle it brings. So, although unwelcome, the threatened tax changes are unlikely to seriously impact on the overall desirability of a second home, which is likely to remain the ultimate dream purchase for many.By contrast, furnished holiday rentals are more often bought primarily as a business proposition. So there is speculation that for many owners of furnished holiday rentals, the removal of traditional tax reliefs could have a negative impact on the financial viability of their business and lead many of them to decide to withdraw from the market altogether. Given the importance of the furnished lettings sector to the local economy, this threat is creating considerable alarm amongst industry commentators.However, there can sometimes be unexpected advantages arising as a result of negative developments.  Many small business owners will recognise that is easy to drift along for many years without ever fully standing back and taking a long hard look at the business performance. This is true in many small businesses but especially so in the holiday lettings sector, which most people enter as a part-time or occasional  business interest  and may run from some considerable distance away, so they end up with a ‘hands off’ approach to their property investment. They may have arranged key holder services and cleaning services but not thought far beyond these items in terms of how to deliver a great customer experience.It is possible that this new tax regime will cause some property owners to scrutinise the way they are running their business and think afresh about their approach to property management. Sometimes a change like this can have a positive impact as it can  lead people into thinking about their business in a more focussed fashion and jolt them out of complacency.So, for some, this change in tax regime is likely to lead to some fresh thinking that could lead to significant improvements in the way they deliver their property management.A squeeze on profitability due to the tax changes could be offset by improvements in overall turnover. So  smart owners of furnished lets are likely to focus on generating new ways of creating a better return from their property investment. This could include additional emphasis on marketing to try to increase the number of weeks that the holiday property is let. It could also include developing new services for customers, in order to increase competitiveness and justify a premium pricing policy.For example, this could include contracting the services of a holiday concierge or holiday homes services specialist company. In this way, a property owner could offer a range of added value services to visitors without any upfront capital outlay.This could include offering concierge services such as journey planning, restaurant and spa bookings or even arranging a chef to visit a rental property and prepare a gourmet dinner party, all of which are typical services that can be provided by a holiday homes services specialist.Through moving into provision of these kind of additional services for visitors, holiday home owners can increase the appeal of their properties and help safeguard the profitability of their business.If  many  owners of holiday properties are led to consider this kind of improvement to their  property management approach, the tax threat will have  a positive impact on the tourism market overall, driving up quality standards.