Airbnb hosts who rent out their properties are being warned new tax rules mean they could lose out on thousands of pounds during holiday season.

The government has ended tax breaks for Furnished Holiday Lettings (FHL) in the Spring Budget.

The changes mean some types of tax reliefs and allowances will be abolished and FHL properties will be subject to the same rules as a long-term let.

Government officials have claimed the tax breaks given to FHL landlords had stopped residents from getting onto the property ladder.

Fears have also been growing that Britain’s holiday hotspots are turning into ghost towns during the off season with properties lying empty and local economies struggling.

Landlords who let out Airbnb or other FHLs will no longer benefit from tax advantages over landlords who let residential properties in a bid to help locals buy a home.

Owners of FHLs will no longer be able to deduct the full cost of mortgage interest from their rental income.

Those operating as limited companies – or without mortgages – will not be as affected but have been advised to consult a tax expert to further understand the new rules, which come into force in April 2025.

Lee Murphy, managing director of The Accountancy Partnership, said: “With the abolishment of tax breaks for Furnished Holiday Lettings set to take effect from April 2025, it is vital property owners to seek guidance from accountants and tax advisers.

“Navigating the new rules can be complex and professional advice will be crucial for financial planning.

“There are a raft of changes that will affect many owners of holiday properties, particularly those who use Airbnb.”

So is the short-let boom over? The fact that declining occupancy rates is driving a reduction in revenues suggest it could be for some investors.

The latest research from Benham and Reeves has shown that while the number of short-term rental properties has climbed across the majority of holiday hotspots, there has been a reduction in occupancy rates across the board.

Benham and Reeves analysed the current state of the short-term rental market, looking at the level of available market stock, occupancy rates and revenues and how these market metrics have changed over the last year*.

The figures reveal that there are over half a million active short-let listings across the UK and when it comes to this number, there has been an increase across all but one holiday hotspot analysed by Benham and Reeves.

With 52,494 active listings, London is home to the largest number of short-term lets, with this number having increased by 22% over the last year. Just Manchester has seen a larger increase at 29%, with the Peak District (+18%), Lake District (+15%) and Cotswolds (+10%) also seeing a notable increase.

Somerset, Dorset, Devon and Cornwall have also seen an increase, with just Edinburgh seeing the number of active listings fall year-on-year (-12%).

However, while many landlords have been tempted away from the private rental sector by the far higher rental incomes secured across the short let space, the figures highlight a worrying trend that could come back to bite them.

All 10 of the areas analysed by Benham and Reeves have seen a reduction in occupancy rates over the last year, with the largest coming across Devon (-16%), Dorset (-14%) and the Cotswolds (-14%).

As a result, annual revenues have also been lacklustre over the last year, with Devon (-7%), Cornwall (-4%), London (-4%) and Manchester (-3%) all seeing an annual drop, while annual revenue growth across Dorset (0%), the Cotswolds (1%) and Somerset (2%) have been largely flat.

The result? A price hike passed onto the consumer in order to help balance the books, with all 10 areas seeing a sharp increase in the average daily rate charged – the largest of which have been seen across Edinburgh (+18%), the Lake District (+16%), Somerset (13%), the Peak District (+13%) and Cornwall (+10%).

The director of Benham and Reeves, Marc von Grundherr, commented: “Many traditional landlords have succumbed to the allure of the short-term rental market in recent years, as they’ve looked to boost the profit margins of their rental portfolio following a string of legislative changes to the PRS sector.

“This is a trend that has continued over the last year with the vast majority of areas we analysed seeing an increase in active listings.

“However, the data also suggests that the heat may be dying down with respect to consumer demand, with occupancy rates falling significantly and denting annual revenues in the process.

“As a result, it seems as though short-let providers have ramped up daily rates in order to compensate, but this is a tactic that is unlikely to resonate with consumers given the current economic landscape.”