Tax loophole on second homes closed

Owners of second homes who report them as holiday lets will now have to prove it in order to not pay council tax and access business rates relief

From April 2023, owners of second homes will have to prove they are holiday lets and are being rented out for a minimum of 70 days a year to not pay council tax on them and access a business rates relief.

Holiday let owners will have to provide evidence such as the website or brochure used to advertise the property, letting details, and receipts. The properties must also be available to be rented out for 140 days a year to qualify for relief.

Announced in the March 2020 Budget, the changes by the Department for Levelling Up, Housing and Communities (DLUHC), target people who ‘take advantage of the system’ to avoid paying council tax in popular holiday destinations areas such as Cornwall, Devon, the Lake District, Suffolk, West Sussex, and the Isles of Scilly.

Michael Gove, secretary of state for levelling up said: ‘The government backs small businesses, including responsible short-term letting, which attracts tourists and brings significant investment to local communities. However, we will not stand by and allow people in privileged positions to abuse the system by unfairly claiming tax relief and leaving local people counting the cost.

‘The action we are taking will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.’

Currently, owners of second homes in England do not have to pay council tax on them and can instead pay business rates if the property is registered as a holiday let which means all but the largest properties pay little or no tax.

They are also able to access a small business rates relief by simply declaring an intention to let the property out. You do not have to prove the property is a genuine holiday let under the rules.

However, concerns have been raised over the last few years that many never actually let their homes and leave them empty and are therefore unfairly benefiting from the tax break.

The government states that the move will help protect genuine letting businesses and will support local economies.

In England, there are around 65,000 holiday lets that are liable for business rates relief of which around 97% have rateable values of up to £12,000.

According to the Campaign to Protect Rural England (CPRE), there has been an 1,000% increase in the number of homes listed for short-term lets in the UK between 2015 and 2021.

Kurt Jansen, director, Tourism Alliance said: ‘Establishing these new operational thresholds for self-catering businesses is welcomed by the tourism industry as it makes a very important distinction between commercial self-catering businesses that provide revenue and employment for local communities and holiday homes which lie vacant for most of the year.

‘It is recognition that tourism is the lifeblood of many small towns and villages, maintaining the viability of local shops, pubs and attractions.’