The Government have launched a consultation that could alter the way council tax and business rates are applied to people with second homes in the UK.
The consultation process will research claims that some people with second homes are exploiting a ‘tax loophole’ that could be costing local councils millions of pounds in council tax.
Within the current system, second-home owners pay council tax on their properties unless owners let the property as holiday accommodation for more than 140 days per year.
If this is the case, the Government could allow the property to register for business rates as opposed to council tax. The issue increases when these homes are eligible for small business rate relief.
Holiday lets with a rateable value of £12,000 or less would then allow the property owner complete exemption from business rates.
Of the 47,000 properties that are liable for business rates in the UK, 96% have a rateable value of £12,000 or less.
Whilst the Government support the use of business rates, they are looking to tighten the system to deter people from exploiting relief which enables them exemptions from council tax whilst still taking advantage of council resources.
Rishi Sunak, Local Government Minister and MP, said: “We’re aware of concerns that the current arrangements for valuing second homes for business rates and claiming relief do not provide strong enough protections against abuse.
“We are seeking views on whether we should strengthen the checks already in place to ensure second-home owners have to pay Council Tax, while ensuring genuine holiday let businesses are able to demonstrate they are eligible for business rates relief.
“The consultation will seek views on whether the current criteria should be strengthened to ensure second home owners are contributing to the local economy through the proper payment of council tax, or, for those genuinely renting out their property and supporting tourism, business rates.”
The fact that there is no requirement to provide letting evidence at the moment could be one of the changes moving forward. In the future, a second-home owner would need to prove the letting potential of the property before business rates can be applied.
What will this mean for people buying a second home in the future? Could changes to the current system deter people from retaining their second home?