Holiday let tax changes could wipe out tourism in Wales, warns PASC

CARDIFF – A stark warning has been issued by the UK's leading self-catering trade body, cautioning that new Welsh Government tax regulations could trigger a collapse in the nation's tourism sector. The Professional Association of Self-Caterers (PASC) claims the stringent new rules, designed to address housing shortages, are unachievable for many legitimate businesses and risk causing damage "to the point of no return."

The controversy centres on a significant tightening of the criteria that holiday let properties must meet to qualify for business rates instead of domestic council tax. Industry leaders argue the policy, while well-intentioned, fails to distinguish between professional tourism providers and infrequently used second homes, placing thousands of small businesses and the local economies they support in financial jeopardy.

In a strongly worded statement, PASC articulated the industry's deep-seated fears. "We're not tackling the root cause of the issue, we're tinkering around with symptoms, we're playing with sticky plasters," a spokesperson for the association told BBC News. "And if we don't address the issue - that 182 is too high - it will continue to have a detrimental impact on tourism, possibly to the point of no return."

Dissecting the New Regulations

At the heart of the dispute are the occupancy thresholds implemented by the Welsh Government, which came into effect in April 2023. To be classified as a self-catering business and pay business rates, property owners must now prove their holiday let meets two demanding criteria.

• Availability Threshold: Properties must be available to let for a minimum of 252 days (approximately 36 weeks) in a year. This is an increase from the previous requirement of 140 days.

• Occupancy Threshold: The most contentious change is the rule on actual lettings. Properties must be actively rented out to tourists for at least 182 days (26 weeks) a year. This represents a 160% increase from the previous 70-day threshold.

Properties failing to meet these new rules are reclassified as domestic dwellings. This means they become liable for council tax, which is often significantly higher than business rates. Furthermore, local authorities in Wales have the power to apply a council tax premium of up to 300% on second homes and long-term empty properties, a measure intended to encourage owners to sell or rent them out to locals.

A Policy to Tackle the Housing Crisis

The Welsh Government has consistently defended the policy as a necessary step to address the acute housing crisis affecting many parts of Wales, particularly in coastal and rural tourism hotspots.

Ministers argue that the proliferation of short-term holiday lets has reduced the available housing stock for local residents, driving up both property prices and rental costs, and making it difficult for people to afford to live in the communities where they grew up.

The Government's Stated Aims:

• Fair Contribution: The policy aims to ensure that all property owners make a fair contribution to the local communities and services they benefit from.
• Housing Availability: By making it less financially attractive to run a property as a part-time holiday let, the government hopes more homes will become available for long-term rental or purchase by local families.
• Legitimate Businesses: Officials maintain that the 182-day rule is a fair benchmark to distinguish genuine, year-round tourism businesses from second homes that are let out only occasionally.

"These changes are about creating a level playing field and ensuring that properties are being used in ways that benefit our communities," a Welsh Government spokesperson previously stated. "We believe that genuine holiday businesses will be able to meet these new thresholds."

Economic Headwinds for Small Businesses

However, PASC and other business groups argue the 182-day occupancy target is commercially unviable for a vast number of legitimate operators. They contend that the government's one-size-fits-all approach fails to account for the realities of the tourism market.

The primary challenges cited by the industry include:

• Seasonality: Many tourism businesses in Wales, particularly those outside major cities, rely heavily on the peak season from Easter to September. Achieving 182 days of bookings is exceptionally difficult, if not impossible, during the quieter autumn and winter months.

• Mid-Week Lulls: Even during peak season, achieving 100% occupancy is rare. Mid-week periods are notoriously harder to fill than weekends, making a 26-week-per-year booking target an immense commercial challenge.

• Financial Squeeze: For a small business owner, the shift from modest business rates (often with Small Business Rates Relief) to a potentially quadrupled council tax bill represents an existential threat. This sudden and dramatic increase in overheads could force many to close.

• Wider Economic Impact: The self-catering sector supports a wide ecosystem of local jobs, including cleaners, maintenance staff, laundry services, and local producers. It also drives footfall to pubs, restaurants, and local attractions. PASC warns that a contraction of the sector will have a severe knock-on effect, leading to job losses and reduced spending across the local economy, which is valued in the billions of pounds annually.

An Uncertain Future

The standoff places the Welsh tourism industry at a critical juncture. While the government remains committed to its housing-first policy, the tourism sector is calling for an urgent review and a more nuanced approach.

Industry proposals include a tiered system or regional variations that account for differing market conditions, or a lower, more realistic occupancy threshold that still filters out casual lets without penalising established businesses.

For now, thousands of small business owners across Wales are facing a period of profound uncertainty. Many are awaiting their first full-year assessment under the new rules, which will determine whether their livelihood remains viable or if they will be forced to sell their properties or exit the market altogether. The long-term consequences for Wales's brand as a premier tourist destination, and the economic fabric of its rural and coastal communities, hang in the balance.