‘The farming accident that killed my husband didn’t finish us – but this could’

Rishi Sunak promised to be a “champion of agriculture” in his speech at the National Farmers Union conference last month.

The Prime Minister was sent to Birmingham on a charm offensive to stem the collapse in rural support, declaring to farmers: “I’ve got your back.”

However, two weeks on from the Budget, farmers are coming to the realisation that the Treasury’s tax raid on holiday lets threatens to inadvertently rip away their livelihoods. Put simply: many farmers feel rather than having their backs, Rishi Sunak has put a knife in them.

A crackdown on furnished holiday lettings, which includes removing tax breaks, was supposed to be a popular policy to tackle the housing shortage in coastal areas and holiday hotspots. By removing the tax incentives for holiday let owners, it would encourage them to sell up, boosting local housing.

However, caught in the crossfire between the Government and second-home owners are farmers. Faced with ever-dwindling profits and having to compete with external shocks such as the war in Ukraine and more extreme weather, farmers have long been encouraged to diversify their businesses by the Government.

A report last year by the Department for Environment, Food and Rural Affairs (Defra) said diversification was a “rational response” to “enhance income” and found 49pc of farms let their disused buildings for non-agricultural use.

‘Farming alone is not profitable’

Sally-Ann Chesters is one such farmer. Alongside her husband, they began diversifying Millmoor Farm in Cheshire 28 years ago when they opened a bed and breakfast. Since then, they’ve converted their spare barns into six holiday cottages.

The holiday lets now account for half of the profit their farming business generates, despite managing a 260 acre farm.

Lifelong Conservative voter, Mrs Chesters said: “We wouldn’t be farming today if we didn’t have the holiday let business, it’s become more and more important.”

Despite their economic reliance, she explained their holiday let business exists out of necessity rather than choice. “What we would love is for the farm business to be much more profitable so that we could ease off with the holiday lets but we are not quite there yet.

“It’s still an uphill struggle because with farming, one year you can have a really good price for your lambs, but another year the price is on the floor.”

Ashlyn Cumberland Reed, 52, runs Tredethick Farm in Cornwall, a toddler-friendly farm that enables young families to experience a working farm while holidaying.

The mother and widow said: “It is breathtaking. I sat down with my manager last week and we thought we had got through the farm accident which killed my husband, we got through Covid, we thought we could get through anything, but this has just stopped us in our tracks.

“We are at the heart of a rural stable community. I employ 14 people locally, I am local, my kids are local. Tredethick has been running as a diversified farm since 1995, it’s been in the family for 110 years, but this change is unnecessarily challenging.”

The furnished holiday let regime provides two significant forms of tax relief farmers have relied on. Firstly, it allows them to deduct the full cost of their mortgage interest payments from the rental income of the property.

Secondly, they are entitled to capital gains allowances meaning they can deduct the cost of the furniture and fittings of the properties from their profits before paying tax. By removing these benefits, it will almost certainly move them into a higher tax bracket, reducing their net income.

With such high running costs, not being able to offset these expenses has left Mrs Cumberland Reed in an impossible position. “No one is earning a fortune, this is Cornwall. I’m a single parent, I’m just trying to get by. I thought I was the small to medium business the Conservatives are trying to encourage.

Not only is Mrs Cumberland Reed left with a business which will be penalised by the changes, the eight cottages cannot be used for longer-term lets as they are classified as holiday lets.

‘A tax trap’

Ralph Rayner, who manages the Ashcombe Estate in Devon, is in a similar position.

“We have used redundant farm buildings which are no longer suitable for modern agriculture and converted them into cottages,” he said.

“The condition of being able to convert them was that they could only be used for holiday let purposes. We couldn’t change them to be residential if we wanted to, in fact we’ve tried.”

The 2,500 country estate has been in Mr Rayner’s family for three generations and farming has increasingly given way to the holiday lettings part of the business to fund the estate. 

Having first diversified in 1997, they now have eight properties, which can sleep up to 103 people at any one time, and three swimming pools.

Last year, Mr Rayner had 4,800 guests stay at Ashcombe cottages and estimates his business alone generates 2pc of the tourist spend for the Teignbridge district.

He said: “Farmers have been told to diversify, so we’ve all diversified into all these different businesses which effectively have become a tax trap. I’ve been in contact with my accountants and they’ve sent me a synopsis of how this will affect us and it’s pretty brutal to be honest.

“There isn’t anything I can see in it which is of any use because once we can’t reclaim capital allowance, it will impact us hugely.

“These are very intensive businesses because the people who come to stay in them do tend to break things and they do tend to wear things out very quickly.

“We are regularly changing over mattresses, beds, TVs, sofas, all these things we wouldn’t be allowed to [claim capital allowance against], and these are big ticket items because people expect the very best nowadays.

“We end up having to spend money every year and that is where the marginal nature of the business comes into play. The cost is in the hundreds of thousands [of pounds]. And while we have a large income we also have a very large outgoing. The actual profitability is not what they seem to think it is, they seem to think it’s just some big cash cow.”

Mr Rayner argued the Government’s policy has conflated second-home owners with locals who run holiday let businesses that have huge benefits for the local economy. 

He said: “What they are trying to do is change the people who have a property by the sea somewhere and stay there once a summer or twice a year and rent it out, they are your classic second-home owners.”

‘Untold damage to local economies’

It’s not only farmers who feel hard-done by the decision. Anger is rumbling throughout the rural business community at the decision with many increasingly arguing it doesn’t seem thought through.

Alistair Handyside, chairman of the Professional Association of Self-Caterers, said it was “policy on the hoof” and would cause “untold damage to rural and coastal economies”. His organisation has launched a petition to stop the abolishment which has been signed by almost 13,000 small businesses.

The Treasury said the abolishment will not take effect until April 2025 and draft legislation will be published in “due course”. However, privately some Conservative MPs have expressed their opposition to the Government’s decision.

One senior Conservative MP told The Telegraph he would immediately amend the abolishment to exclude those who are restricted by planning permission.

Sir Robert Goodwill, who is chairman of the Environment, Food and Rural Affairs Committee, said: “I think they should look at where the planning permission only allows holiday use.

“I think there’s a strong argument these changes should not apply to those businesses because they don’t have the option of switching those lets into residential lettings.”

The Scarborough and Whitby MP, who himself helps run his 250-acre family farm in Terrington, North Yorkshire, added: “A lot of my friends and neighbours have holiday lets and more regularly it’s farm buildings which have been converted.

“These are not purely an investment property business, there is a lot of work involved in terms of the cleaning. It’s not just buying a unit on an industrial estate and collecting rent. It’s genuinely hard work which usually a farmer’s wife has to do as part of the overall farm business.”

Michael Parker, head of tax at the National Farmers Union, said: “Abolishing the furnished holiday lets regime could mean a significant financial hit for many of our members. This is an important source of diversification which can provide a steady income stream to help manage volatility and underpin the resilience of the farming business. 

“Many are converted farm buildings which can be restricted to being used for holiday letting and not for the residential letting market.”

The Treasury said the planned reforms will make the holiday let system “fairer and simpler”.

A spokesman said: “This change levels the playing field between short-term holiday lets and longer-term lets while supporting local people’s access to housing.

“These changes will not penalise or prohibit the provision of furnished holiday lets, but will make the tax system fairer and simpler.”