The number of people making money from renting out holiday lets has risen by nearly 40 per cent in a decade, as data shows holiday homes have now become more profitable than buy-to-let investments.

David Byers www.thetimes.co.uk

Figures released by HMRC after a Freedom of Information request show that 63,000 individuals received income from 65,000 furnished holiday let properties in the UK according to the latest data available — up from 46,000 making money from 50,000 properties in 2011-12.

Further statistics show the increasing profitability of owning a holiday let compared with the diminishing returns of being a landlord, with holiday let income rising by an average of 63 per cent in the past decade compared with just 5 per cent for buy-to-let. The average annual holiday let income actually exceeded buy-to-let income for the first time in 2020-21 — reaching £15,600 compared with £13,400 for buy-to-let. A decade ago, holiday lets generated an annual average of £9,600 compared with £12,800 for buy-to-let.

Critics say the figures further illustrate why tax rules that incentivise investing in holiday properties, while turning people against being traditional landlords, are driving up prices in rural hotspots such as the Lake District while simultaneously creating a chronic shortage of rental properties in cities.

For holiday lets, if your property qualifies as a self-catered holiday let — meaning that in England it must be let for at least 70 nights a year and available for at least 140 — you can switch from paying council tax to business rates. However, if your annual business-rates bill is less than £12,000 and you only rent out one property, you are exempt and will pay no tax. In Wales the rules are tighter — properties not let out for at least 182 nights a year and available for 252 are classed as a second home and the council tax bill is doubled. You can also get tax relief on mortgage interest payments, and tax relief on expenses such as furniture.

On the other hand, buy-to-let owners used to be able to deduct borrowing costs and some property management costs from their rental income before paying tax on it, but that has been phased out, ending completely in 2020.

The Freedom of Information figures on holiday lets relate only to those people declaring income in personal names, and therefore excludes anything in a company structure.

David Fell, a senior analyst at Hamptons, who submitted the request, says the number of people investing in holiday lets rose dramatically during the pandemic because so many more people were confined to staycations as a result of international travel restrictions. “While Covid undoubtedly distorted the market, the longer term upward trend in revenue predates Covid, and it’s a trend the government has been increasingly worried about.”