What's the latest on the proposed tourist accommodation levy (tourist tax) for short-term lets in various UK cities, and how will it directly impact my nightly rates and profitability for properties in destinations like Bath and Brighton?
Quick Answer
Many UK local councils are proposing a tourist accommodation levy on short-term lets, which would add a nightly charge to bookings, impacting profitability and potentially increasing rates for guests.
## What is the proposed tourist accommodation levy?
The proposed tourist accommodation levy, often referred to as a 'tourist tax', refers to local councils gaining powers to impose a charge on overnight stays in short-term rented accommodation. Although not yet national legislation in England, several cities, including Bath and Brighton, have expressed strong interest in implementing such a levy to manage tourism's impact and generate revenue. For example, Edinburgh already has a Transient Visitor Levy (TVL) of 3% per night, capped at seven nights, for short-term stays in hotels and Airbnb-style properties. This mechanism is similar to what is being proposed.
## How will this levy impact my nightly rates?
The levy will directly affect nightly rates for short-term lets, as it represents an additional cost that needs to be covered. Owners typically have two options: either pass the full cost directly to the guest, increasing the advertised nightly rate or adding it as a separate charge, or absorb some or all of the cost themselves, which reduces their net profit per night. The decision on how to implement this will depend on market competition and the owner's pricing strategy.
For instance, if a property in Bath charges £150 per night and a 5% levy is introduced, the nightly cost would increase to £157.50 for the guest, or the owner would see their £150 net profit reduce to £142.50. This can influence competitive pricing strategies and guest booking decisions, especially in markets sensitive to price changes.
## What happens to my profitability and holiday let status?
The introduction of a tourist accommodation levy will reduce the net profitability of your short-term let operations if you absorb the cost. If you pass the cost to the guest, it could potentially make your listing less competitive compared to properties in areas without such a levy, or larger hotels that can absorb it more easily.
Importantly, the proposed levy does not directly alter your property's status as a holiday let for tax purposes, provided it continues to meet the 'Furnished Holiday Let' criteria (available 140+ days/year and let 70+ days). However, the increased cost potentially impacts the overall viability of operating as a short-term let, particularly for lower-yielding properties. Consider a property currently generating £20,000 in annual revenue from short-term lets; a 3% levy could cost £600 annually, reducing net income before other expenses. For properties paying £2,000 in Council Tax, this is a significant additional cost.
## Does this affect properties let on Assured Shorthold Tenancies (ASTs)?
No, the proposed tourist accommodation levy is specifically aimed at short-term visitor accommodation and does not apply to properties let on Assured Shorthold Tenancies (ASTs). These properties are considered long-term residences where the tenant is responsible for Council Tax, not a nightly tourist charge. The focus of these levies is to generate revenue from the transient visitor economy and mitigate impacts of high tourism numbers, not long-term residential housing.
## What should I do to prepare for these changes?
Investors with short-term lets in proposed levy areas like Bath or Brighton should monitor their local council's policy announcements closely. It is advisable to factor potential levy costs into your financial modelling and pricing strategies now, even speculatively. Engage with local tourism boards or short-term let associations for updates and consider how your property's unique selling points can mitigate any price increases passed onto guests. Understanding your local council's discretionary policies on second homes and empty properties, which can impose up to 100% Council Tax premium after 1 year, is also crucial as these are separate but related charges impacting property holding costs. This is not to be confused with the discretionary Council Tax premium on furnished second homes that councils can charge up to 100% from April 2025.
Steven's Take
The proposed tourist accommodation levy presents a clear challenge to short-term let profitability in areas like Bath and Brighton. My advice is to perform sensitivity analysis on your rates; understand what a 3-5% additional cost means for your bottom line and your competitiveness. You need to decide whether to absorb the cost, pass it on, or find a blend. This isn't just about income; it's about future cash flow and long-term viability, especially alongside potential Section 24 mortgage interest changes and increased Council Tax premiums for second homes from April 2025. Don't wait for it to hit; plan for it now.
What You Can Do Next
Check your local council's website (e.g., bathnes.gov.uk or brighton-hove.gov.uk) for current consultations or policy proposals regarding tourist accommodation levies to understand their specific plans and timelines.
Model the financial impact of a potential 3-5% levy on your existing or prospective short-term let property to assess its effect on your net nightly rates and overall profitability, ensuring your strategy remains viable.
Consult your pricing strategy to determine if you will pass on the levy cost to guests or absorb it, considering competitive market rates and your property's unique value proposition.
Engage with local short-term let owner groups or associations to stay informed on developments and potential collective actions regarding these proposed levies and their impact on businesses.
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