The government has reportedly drawn up plans for a tax raid on holiday cottages ahead of Andy Burnham’s first Budget.
Chancellor John Healey is said to be weighing up introducing a tax on holiday lets by classifying them as second homes rather than businesses.
Such a move could add thousands of pounds to the cost of running them, sparking warnings from tourism bosses that many owners could be forced to sell up.
It comes amid warnings that Mr Healey will need to find as much as £10bn in tax rises or spending cuts in his first budget as the impact of the war in Iran bites on Britain’s economy.
Alistair Handyside, chairman of the Professional Association of Self-Caterers, told The Telegraph – which first reported the plans – that such a move could cost the average holiday-let owner between £1,000 and £3,000 per year. But he warned many of them are only making £5,000 profit.
“The average self-catering business owns 1.2 properties and it is usually a second income, often run by working mothers or retired people, who have already been hit by 25 government interventions in the past four years”, he said.
“The self-catering sector is already declining and a lot of people will decide it’s just not worth it any more. I can tell you that the government already takes more money out of my business every year than my wife and I do.
“What the government doesn’t realise is that holiday lets provide the bed space for people visiting areas that don’t have the hotel spaces that London and big cities have. If the bed spaces decline, so does the local economy, because pubs, restaurants, butchers, all sorts of businesses only stay in profit because of the annual influx of tourists.
“So I would just say to the government, be careful what you wish for.”
It comes after Treasury minister James Murray confirmed in a written parliamentary answer that his department was reviewing “the tax treatment of short-term lets, such as self-catering accommodation”, saying that “concerns have been raised” about second-home owners using small business rates relief to manage their tax burden.
Shadow chief secretary to the Treasury Richard Fuller hit out at the plans, telling The Telegraph: “Labour has launched a £9bn business rates raid, compounding the damage done by its jobs tax and employer red tape.
“Now it is looking for ways to pull more and more people into scope for its crippling taxes including with a holiday cottage tax.
“Labour should focus less on squeezing taxpayers dry and more on cutting the welfare bill so we can cut taxes and grow our economy.”
The latest measures have been reported just days after it emerged that Andy Burnham is set to hand England’s mayors the power to introduce an uncapped tourist tax in a move that has been criticised by hospitality leaders.
Local leaders will be allowed to set a levy on a percentage of the cost of accommodation to overnight visitors – rather than a flat fee – in what the government believes will protect budget holidays.
The boss of the hospitality trade body warned the plans will put jobs at risk in some communities, saying that a new tourism tax in Edinburgh is “already having damaging effects”.
But Downing Street insisted the “overwhelming majority” of hospitality businesses will not be “directly affected” by tourism tax, pointing to similar visitor levies already used in some areas of Europe.
A Treasury spokesperson said: “The chancellor is fully focused on his priorities, to give families and businesses a bit of breathing space, back British jobs, and drive growth in every postcode, underpinned by a commitment to meet the fiscal rules.
“As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
