A rule that lets second home owners avoid paying council tax if they rent their properties out for just 10 weeks a year is costing central and local government an annual £334 million in revenue, according to commercial real estate company Colliers.
The loophole allows owners to ‘flip’ their holiday homes into the business rates system to avoid paying council tax, with Colliers claiming the practice has resulted in £53 million of lost income in Cornwall alone over the last year.
The company says the situation has been exacerbated by rules which allow councils to charge double the rate of council tax for second homes in England, with a higher rate in Wales. ‘This will just encourage more second homeowners than ever to flip their properties into the business rates list when they can’, said John Webber, head of business rates at Colliers.
Under current regulations, the second property can be classed as a business if the owner makes it available as a holiday let for 140 days of the year, and it is let by holidaymakers for at least 70 nights in total. As a small business, the owner can elect to pay business rates instead of council tax and claim 100% relief on the business rates payable if the rateable value is less than £12,000. Properties with a rateable value between £12,000 and £15,000 can claim relief on a sliding scale.
Colliers’ analysis of relevant properties in Cornwall, Devon, Dorset and Somerset found 21,678 owners opting to pay business rates and claiming 100% relief. At current council tax rates for second homes, Colliers estimates the loss of revenue to be around £105 million. The issue is most acute in Cornwall, which Colliers says has 10,731 holiday lets where owners pay neither council tax nor business rates amounting to £52 million in lost revenue.
Across England and Wales, Colliers estimates there are 73,838 holiday let properties eligible for 100% business rates relief.
Webber commented:
“Despite posturing, little is being done by the government to properly reform the business rates system. This is especially extraordinary given the pressure on local authority finances, and the subsequent need for central government to fill any gaps. The local tax burden remains weighed onto residents or other types of businesses that are struggling to pay their council tax or business rates bills, which have risen substantially in this last year. Meanwhile agents selling properties in popular domestic holiday areas positively advertise the business rates savings advantages of gaming the system.
“Politicians bicker about the lack of social housing in places like Cornwall and portray people buying second homes as the villains. Yet if Cornwall council had been able to charge holiday let owners at least the same as a council taxpayer, they would have received over £150 million of extra income in the last five years alone, which they could have spent on building affordable housing in the county.
“The problem is not second homeowners; it is politicians failing to understand the issues and having the courage to do something about it. The government should reform the whole system and do it thoroughly.”
3 responses
My business used to do work for local councils. My quotes or amends were never queried or compared as with any other private sector business. The problem with public entities is that they ore staffed by civil servants with very little private sector experience and they have an open cheque book.
Additional taxes are not spent in the area that they are collected, so no more homes would have been built.
As a developer- more homes would be built if
– Interest rates on business lending were sensible and not prohibitive.
– If Human Habitat was considered as important as Animal habitat.
– If properties weren’t filled with environmentally unfriendly insulation and were instead well ventilated with full solar roofs. the occupants would be healthier because they would be breathing fresh air instead of stale air- the temperature regulation is much better, damp and rot issues would be less prevalent.
The councils are like the mafia, they create a social narrative of environmental catastrophe to enable them to implement reasons to extort money from developers on a “Moral basis”. This is from a top down European level. The reason is to create new industry which generates GDP which as a ratio with National debt makes them remain solvent( on paper) these are facts. The physical problems caused to buildings by over insulation in non ideal real world building conditions cause rot and damp issues which reduce their life cycle considerably hence requiring further energy and material consumption to rectify them. The real world calculations and outcomes do not support their contentions.
Bloody brilliant reply that needs to go straight to policy making making ministers who actually bother to then do their research and due diligence
2024 Wettest UK on record.
2025 Hottest UK on record.
Legislate and pontificate Tax/Exemption Laws all you want, but; if you don’t keep dry and you don’t stay cool, then none of it will really matter; will it?