Farm-based holiday providers face a tough 2025
© Adobe Stock Farm-based holiday providers are dealing with a significant shift in market dynamics because of a combination of tax and regulatory reforms, and a change in the shape of demand.
Short staycations booked at late notice are expected to be the trip of choice, mirroring the pattern of demand for holiday accommodation seen last year.
Visit Britain’s latest Sentiment Survey (January 2025) points to the number of people planning some form of domestic getaway remaining steady, while the numbers planning an overseas trip are slightly up.
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The unpredictability of the UK weather is cited as the main barrier to planning a break in the UK.
This is a change from the start of 2024, when concern about the rising cost of living was the primary issue for potential holidaymakers.
Shorter stays
Joby Mussell is chief commercial officer for holidaycottages.co.uk.
He says there is growing evidence that staycations are getting shorter, with many holidaymakers preferring to have multiple, shorter stays across the year, rather than a week at a time.
“We also anticipate there will be a continued trend where many holidaymakers will continue to leave bookings to the last minute for those more spur-of-the-moment shorter breaks.”
However, larger properties which can accommodate a group and which people see as a destination in itself, rather than just a base from which to explore the local area, are bucking this trend.
Here, forward bookings are up on last year’s levels, says Joby.
“We believe this growth is due to seasonal occasions and big milestone birthdays becoming more of an important opportunity for families to come together with one another.”
Lead times
David Brown, director of Farm Stay UK and owner of Hoe Grange Holidays, says that personally, he is looking at quite a strong year, but the lead time for bookings continues to drop.
“It is becoming even more pronounced. We have gone from lead times being 12 months, to six months and now to probably three months.
“We are picking up bookings for the summer, but we are not picking up anything for after the summer, which makes it difficult to plan,” he explains.
“However, looking back, we went into November with a completely empty diary and then ended up having one of the best Novembers we have ever had.”
David points out that the trend towards shorter breaks has created extra work and leads to higher costs. “We are having to do more cleaning and more changeovers for the same number of days.”
Challenged consumers
Alistair Handyside is executive chair of the Professional Association of Self-Caterers (PASC) UK, a lobby group for self-caterers.
He says while the sector may have had a very good year in 2021 because it was difficult to travel abroad, things have been more difficult since then.
“There has been more change in the dynamics of the market in the past three years, than in the previous 20.”
The cost-of-living crisis is part of the reason as it is not only reducing how much money people have to spend on a UK holiday, but also denting their confidence, deterring them from booking ahead, he says.
The bad weather over the past 18 months has also been a huge factor in softer demand. This had led to depressed occupancy, which in an oversupplied market, is leading operators to drop prices.
The majority of respondents in PASC UK’s survey said they needed to increase prices to offset the additional tax they will face following the furnished holiday let reforms.
However, this is probably not a realistic proposition for most, says Alistair.
“There is a market price for accommodation and that is not always what you would like or need to charge.”
Income from pop-up campsites
Pop-up or temporary campsites can operate for 60 days during a calendar year in England, and 28 days a year in Wales.
These run under permitted development rights and are limited to 50 pitches.
According to camping booking website pitchup.com, the top-performing pop-up campsite in 2024 was in Devon, and turned over £63,100.
A new pop-up in Devon also took in £44,300.
However, the company’s data shows that earnings for each site are typically more modest than this. By region they are:
- North-west England £17,328
- North Wales £13,882
- South-west England £9,715
- South-east England £9,361
- Central England £8,649
Competitive market
James Shaw, managing director of agency Sykes Holiday Cottages, says rural glamping pods were the most-booked type of holiday home last year, and he expects this popularity to continue in 2025.
According to the company’s data, this demand had translated into an average annual income of more than £15,700.
“We also anticipate a general shift to experience, with holidaymakers valuing and prioritising the experiences available during breaks away,” he says.
“Even just giving guests a behind-the-scenes look at farm life, including meeting and feeding animals, goes a long way and will add to the experience of the holiday.”
Abolition of Furnished Holiday Lets tax regime from April this year
The government is pushing forward with plans to abolish the furnished holiday letting (FHL) tax regime from April 2025.
This means that short-term and long-term residential lets will be treated in the same manner.
Currently, owners of furnished holiday cottages, lodges and converted barns enjoy a range of tax benefits, providing they meet certain conditions.
For example, owners are currently eligible for beneficial capital allowances and can set the full amount of their borrowing costs against any rental income.
From April, this will no longer be the case, and favourable capital gain tax reliefs on the sale or gift of a property will also be lost.
Deep worry
Alistair Handyside is, executive chair of the Professional Association of Self-Caterers (PASC) UK.
He says the abolition of FHL, combined with changes to the inheritance tax (IHT) regime and the rising cost of compliance has left people “deeply, deeply worried”.
The end of the FHL regime will result in many owners being taxed as property investors, rather than being able to lock into certain tax benefits normally available to trading businesses.
There is widespread concern that the resulting loss of tax reliefs will dramatically reduce the viability of their businesses.
The change comes at a time when many holiday providers have seen lower occupancy rates because of the cost-of-living crisis and poor weather.
This, at the same time as they are having to absorb additional compliance costs to meet new fire regulations.
Trading to survive
“People are trading to survive, not thrive. There is a misconception that people are making a lot of money from this,” says Alistair.
“If you look at how much margin a farm makes from their holiday cottages, it is already very low.”
PASC UK recently surveyed just over 7,500 holiday providers on the business impact of the loss of FHL status.
It found that 73% of respondents said they will be less likely to invest in their properties as a result of the change.
“People are switching off their spending, which, if you are in the hospitality business, is a disaster,” says Alistair.
There is wider concern that some owners of holiday lets will be forced to sell up or will choose to rent their houses out on long-term leases.
This would lead to the loss of both jobs and investment in rural and coastal economies.
However, Alistair points out that neither of these options is practical for many farmers because their cottages tend to be located within the farm holding.
“It doesn’t work in a farming context.
“If you are doing short-term lets, you retain control of your property. It is a very different scenario having guests coming for a holiday to having someone living and raising their own family on your farm.”
Some owners will also be unable to switch to a longer let because the properties are subject to holiday let planning restrictions.
Lower visitor numbers
Louise Speke is chief tax adviser at the Country Land and Business Association.
Louise says the decision to abolish FHL comes at a time when overall visitor numbers are down, and people need to be investing.
“There is statistical evidence that, to grow the industry, either visitor numbers need to recover, or people need to stay for longer and/or spend more, but in order to encourage these things to happen, businesses need to invest.
“The abolition of the FHL tax regime will hit profits and, in turn, limit operators’ ability to invest in marketing, maintenance, upgrades, and possibly new properties, all of which would support the government’s growth agenda.”
The legislation to abolish the FHL tax regime by April 2025 forms part of the Finance Bill which is currently making its way through Parliament.
There have been hopes of introducing an amendment to the bill which would delay the abolition of the FHL regime by 12 months, but this has not happened to date.
However, lobby groups continue to push for changes that would mitigate the impact of the current proposals.
Tax relief opportunity still open
Farmers running holiday lets can review any capital spending they have made, to seek to claim tax relief on any qualifying improvements that they may previously have overlooked.
“If they are running a qualifying holiday let for tax purposes, then people can claim capital allowances on furniture and fixtures in the property – so things like bathrooms, kitchens, electrical wiring, heating systems, alarms,” Heather explains.
“If you incur that expenditure up to and including 5 April 2025, then you can lock into claiming these capital allowances, which are often at 100% of the amount spent.”
Heather says if the item is still in existence, then it is possible to make a claim for historical expenditure, creating a capital allowance pool.
Under transitional arrangements, this can be carried forward and continue to be claimed as a writing down allowance.
Losses can also be carried forward and used against residential property income.
“If you haven’t reviewed your position, it is well worth doing. People need not panic that it needs to be done by 5 April.
It is best to do it sooner, rather than later, but people have until 31 January 2026 to put in their computation for the period which runs to 5 April 2025.”