Melissa LawfordTue, 23 March 2021, 2:15 pm
Second home owners could see their tax bills rocket after the Government announced plans to close a loophole that has allowed many to benefit from cheaper business rates.
The Government is tightening rules for second home owners meaning they can only register for business rates, which are cheaper than council tax, if their properties are genuine holiday let businesses.
In England, second home owners can pay business rates, rather than council tax, on their properties if they declare they intend to make their property available to let for 140 days in the coming year.
However, there is currently no requirement to verify that it is actually being used commercially, meaning second home owners can declare the property as a holiday let and cut their tax bill.
Not only are business rates cheaper than council tax, but owners may then also claim business rates relief and pay no property tax whatsoever. There are more than 60,000 holiday lets on the business rates list. Almost all (96pc) have a rateable value that would likely qualify them for small business rates relief.
But the Government has cracked down on those who claim these perks but make no effort to let out their properties.
New laws will mean a second home’s qualification business rates will depend on the actual number of days the property was rented for.
Only home owners who make a realistic effort to let their properties will qualify for these tax perks and those that have been running legitimate holiday businesses will face onerous paperwork.
The announcement suggested the Government’s approach to holiday lets, which have previously been more favourable than for long-term lets, has shifted.
Non-residential lets have become a better option for landlords since the Government began cutting tax relief on buy-to-let mortgages in April 2017. Holiday let owners can still offset mortgage costs against tax bills.
The announcement comes just as demand for second homes and holiday lets has boomed with a surge in bookings for British ‘staycations’. Analysis by data company AirDNA showed that bookings for this summer hotspots in Cornwall and national parks have doubled compared with 2019.
A consultation on business rates treatment for holiday lets was launched at the end of 2018 because the Government feared second home owners were restricting periods of bookings, asking for unrealistic rents or failing to market properties in order to claim tax relief.
The Ministry of Housing will publish further details for the changes and implementation of the legislation.
The proposal was announced on “Tax Day”, following the March Budget, and is part of the Government’s 10-year plan to build a more trusted modern tax system.
Financial Secretary to the Treasury Jesse Norman said: “We are making these announcements in order to increase the transparency, discipline and accessibility of tax policy making.”