Landlords in crosshairs of another potential tax hike

Landlords across the United Kingdom who let properties via Airbnb and similar platforms may soon encounter a fresh challenge: the introduction of a so-called “holiday tax” on overnight stays.

According to several reports, Chancellor Rachel Reeves is poised to grant mayors the authority to raise revenue through levies on tourists, including those residing in short-term lets such as Airbnbs. The measure, which could be unveiled in the forthcoming Budget, would have significant ramifications for landlords and the broader hospitality sector, should it come into effect.

Industry estimates suggest that a 5 per cent holiday tax—mirroring the rate set to be introduced in Edinburgh next July—would cost Britons an additional £518 million per annum.

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UKHospitality has cautioned that such a tax would drive up prices for consumers, rendering holidays in the UK even more expensive and potentially dampening demand for domestic travel. For landlords, the measure threatens to erode profitability and diminish the appeal of property ownership, particularly in light of the forthcoming Renters’ Rights Act, which is due to take effect on 1 May 2026. The Act will abolish fixed-term assured tenancies in favour of rolling periodic tenancies, prohibit “no-fault” evictions (thereby ending Section 21 notices), and introduce new restrictions on rent increases.

A new holiday tax would further burden landlords by reducing the affordability of Airbnb stays. The levy would be applied in addition to the standard 20 per cent VAT already charged on accommodation, resulting in one of the highest effective consumer tax rates in Europe.

Reeves has acknowledged the difficult choices ahead, stating: “As Chancellor, I have to face the world as it is, not the world that I want it to be. And when challenges come our way, the only question is how to respond to them, not whether to respond, or not.”

She added: “If we are to build the future of Britain together, we must all contribute to that effort.”

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With similar taxes already being introduced in Scotland and Wales, the trend towards visitor levies appears to be gathering momentum across the United Kingdom. For mortgage brokers and landlords, it will be essential to monitor developments closely, assess the potential impact on rental yields, and consider how best to adapt to an evolving regulatory landscape.

Key takeaways for landlords:

• A 5 per cent holiday tax could add substantial costs to Airbnb and short-term rental stays.

• The tax would be levied in addition to existing VAT, making UK rates among the highest in Europe.

• Higher costs may suppress demand for short-term lets, affecting landlord income.

• The policy forms part of a broader initiative to raise funds for local services, but has drawn criticism from the hospitality sector.