Fearing a capital gains tax increase in the October budget, some holiday let owners are rushing to offload their properties
By David Byers
Tilly Bagshawe, 51, and her husband Robin Nydes, 67, are in a race against time to complete the sale of their £2.85 million “dream” Cotswolds second home.
Bagshawe, a bestselling author, and Nydes, an American businessman, bought the chocolate-box stone house on Lower Slaughter’s village green 12 years ago. They have rented it out as a holiday let in weeks when they are not using it themselves, earning £160,000 in the most recent tax year.
Now, with three of their four children aged 17 and over, they have decided to sell the six-bedroom house, as they increasingly split their time between homes in London and Los Angeles. However, the decision has also been given added urgency due to fears that the chancellor, Rachel Reeves, plans to increase capital gains tax (CGT) in the budget on October 30.
CGT is the levy on the profit made from the sale of assets, including a property which is not your main home. Higher and additional-rate taxpayers pay 24 per cent CGT on the sale of property, but there is speculation that Reeves plans to raise it in line with income tax at 40 to 45 per cent.
“Knowing that Labour was coming in, and there were going to be tax changes and they were going to be negative — particularly with capital gains tax — [and] that there was always likely to be a worsening environment. That probably hastened the decision,” says Bagshawe, whose sister is the former Conservative MP and author Louise Mensch. “Of course it would be nice to sell before your capital gains tax almost doubles.”
Any CGT rise on the scale that has been rumoured will hit Bagshawe and Nydes hard, as they think they will make a profit of about £500,000 on their home, Brook House, which they have put on the market for £2.85 million. At the current rate of 24 per cent, they could face a tax bill of £118,560 when selling it, assuming they have their full capital gains annual allowance and no capital losses. But at 45 per cent, it would be £222,300 — £103,740 more, according to the accountancy firm Blick Rothenberg.
There has been a surge in larger properties being put up for sale in holiday hotspots, according to the property website Rightmove, as sellers try to offload them before any rise. Bagshawe, perhaps unsurprisingly, believes holiday home owners are being used as a convenient cash cow by the government. “I think in general, what they’re trying to do to limit short-term rentals and holiday lets is really bad for our area and for lots of rural areas,” she says.
“In our part of the Cotswolds, for example, it’s a lot of people struggling in the agricultural sector who are trying to rent out their barns or outbuildings. Or people who worked all their lives to afford the dream of a holiday cottage, but who need it to be able to produce a viable income. I think those people are going to be very angry with some of these changes, which will have a knock-on effect on the local economy.”
The great holiday let tax clampdown
There will be plenty of rural residents playing the tiniest of violins. Many have complained loudly that the mass buy-up of homes in rural areas during the pandemic by second home-owners, which was turbocharged by former prime minister Rishi Sunak’s stamp duty holiday, has caused a housing crisis.
In his last budget, the former chancellor, Jeremy Hunt, responded to these protests by announcing that owners of furnished holiday lets will, from next April, no longer get full tax relief on mortgage interest payments, bringing them in line with buy-to-let landlords.
Meanwhile, dozens of local authorities in prime holiday locations like Dorset, Cornwall and the Lake District have been allowed to charge double council tax on second homes, which will also take effect from April next year.
Many agents say the number of holiday lets being put on the market in recent weeks far outstrips demand. Rupert Stephenson from the estate agency Black Brick says: “Some holiday homes that have been in the same family for generations are now coming up for sale as people not only worry about CGT but also have been affected by the change in holiday let tax relief and landlord relief that was imposed by the last government.” He says this includes “a number of prime estates, farms, and coastal properties”, particularly around Exeter and Salcombe in Devon, ranging between £4 million and £10 million.
Helen Whitfield from Butler Sherborn, a Cotswold estate agency which is selling Bagshawe’s house, agrees that fear over CGT is a major factor. “I have been invited to a couple of pitches next week specifically due to CGT planning,” she says.
Anna Sharp, from the Cornwall branch of Black Brick, points out that international travel has picked up since the pandemic, with fewer Brits holidaying at home and bookings “down by an average of 37 per cent this year across Cornwall”. This, combined with soaring mortgage rates, has hit investors in the pocket. In hotspots such as Port Isaac in Cornwall, for example, there are 52 properties on the market with only ten under offer. “For many, it is no longer a viable business transaction, with the yields simply not adding up,” Sharp says.
One investor, who wished to remain anonymous, has recently chosen to sell their holiday home on Mersea Island in Essex, having been hit by a combination of high maintenance and ground rent by her freeholder, and the prospect of CGT changes. “I didn’t want to take any chances ahead of October’s budget,” she says.
A break for first-time buyers
Data from the estate agency Hamptons shows that these clampdowns may already be changing the market in many rural areas, as homes sold by second home-owners are increasingly being snapped up by first-time buyers. The percentage of first-time buyers purchasing properties that had been holiday homes has risen consistently since 2021. In January this year it overtook that of second home-owners for the first time, at 29 per cent to 22 per cent, its highest level ever.
David Fell from Hamptons says that, with the exception of a bump during Covid, this is part of a continuing trend ever since the decision by the former chancellor George Osborne to raise stamp duty by three percentage points for second home-owners and landlords in 2016. “It has definitely pushed more of the homes which are sold into the hands of owner-occupiers — exactly as it was intended to,” Fell says.
The government says it plans further measures to regulate the short-term lettings sector, including an official registration scheme that will show the impact on local communities. Intriguingly, this is supported by Airbnb and the rental site Sykes Cottages, which say it will show that the harm being done to local housing is being exaggerated. Airbnb says, for example, that homes listed for 90 nights or more per year account for just 1.1 per cent of Cornwall’s total housing stock.
Is the party over?
Holiday-let owners will be weighing up whether they can still make it pay. The industry’s supporters claim that, despite the changes, you can make a profit — as long as you pick your area carefully.
The average income made by owners in England in July and August this year was £7,119, up from £6,579 in 2023, according to Sykes Cottages. But this excludes all taxes.
However, it is increasingly important to choose the right location to avoid the saturation in some overheated hotspots. The fastest growing investment area this summer was the artistic and surfing haven of Praa Sands on the south coast of Cornwall, where the average investor made £14,234 in July and August this year.
Second was Nefyn on the northwest Wales coast, where income was up from £7,236 to £9,132, following publicity about Porth Iago beach.
By contrast, more well-known investment areas are proving less profitable. In St Austell, for example, average income has only risen from £6,885 to £7,169. And in Llanberis, north Wales, it is negligible.
Claire Gibson, 54, is one of those who has benefited from the boom at Praa Sands, having earned 30 per cent more this summer than she did last year in bookings for her five-bedroom house. She and her husband Robert Gibson have rented out the house, which has a hot tub and sauna, since she had to relocate to Exeter for work in 2021. “It has worked for us and it continues to do so,” she says.
Gibson will not be affected by Cornwall council’s decision to raise council tax by 100 per cent next April for holiday home-owners. She has registered as a small business and is paying business rates instead, which all investors in England can do if they let properties for a minimum of 70 days a year having made them available for 140. In fact, many properties (although not Claire’s) are eligible for business rates relief too because they have a rateable value — the estimated annual rental value of a property — of less than £12,000.
Indeed, government data shows the number of short-term holiday lets registered for business rates has skyrocketed, from about 8,800 in 2017 to more than 89,000 in 2023 and now accounts for about 10 per cent of all second homes in England.
Gibson says their neighbours have been supportive of her business and that she wants to retire to the house. “As long as I can cover the costs so that we can continue to have the house ready for us when we can come back, that’s our priority,” she says.
One thing is for sure. For those considering selling, but who haven’t yet made up their minds, anxious eyes will be on Reeves’s budget briefcase on October 30.
What about Scotland and Wales?
Scotland has been hit by a blizzard of new rules, including the need for landlords to get a licence from their local council that can cost hundreds of pounds — failure to do so could lead to a £2,500 fine and a banning order. Councils also have the power to convert their region into a short-term let “control area” if there is too much supply, meaning new holiday lets need planning permission to operate.
Wales also tightened its rules in 2022. Owners must now let their properties for at least 182 days a year and make them available to rent for 252 (the threshold in England is 70 and 140), and those who fail to do so will revert to paying council tax as an “empty second home” — a special rate on which councils have the right to charge 300 per cent council tax.
