Tax loophole on second homes to close from 2023

Tax loophole on second homes to close from 2023

Owners of second homes that currently benefit from a tax loophole, by claiming their often-empty properties are holiday lets, will be forced to pay under tough new measures.

Currently, owners of second homes in England can avoid paying council tax and access small business rates relief by simply declaring an intention to let the property out to holidaymakers. However, concerns have been raised that many never actually let their second homes, leaving them empty most of the year, and allowing unfair benefit from the tax break.

The Government says the changes will target people who “take advantage of the system to avoid paying their fair share towards local services in popular destinations such as Cornwall, Devon, the Lake District, Suffolk, West Sussex and the Isles of Scilly”.

Following consultation, the government announced on Friday that it will now bring changes to the tax system, which will mean second homeowners must pay council tax if they are not genuine holiday lets.

From April 2023, second homeowners will have to prove holiday lets are being rented out for a minimum of 70 days a year to access small business rates relief, where they meet the criteria. Evidence such as websites or brochures used to advertise the property as well as letting details and receipts will all be acceptable under the rule change.

Properties will also have to be available to be rented out for 140 days a year to qualify for this relief.

Secretary of State for Levelling Up Rt Hon Michael Gove 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.”

Kurt Jansen, Director of the 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.”

Timothy Douglas, Policy and Campaigns Manager at Propertymark comments:

“Whilst we support today’s announcement, there is still much more that needs to be done to tackle the imbalance of short-term and holiday lets and long-term private rented housing.

In coastal and rural areas, the short-term rental market can be a far more attractive option for new and existing landlords due to the lack of regulation compared to the private rented sector which presents a real risk to the availability and affordability of homes. The additional 3% Stamp Duty Land Tax creates a further barrier to investment in much needed residential homes in the private market.

 We need a more level playing field and that involves reviewing regulation for short-term lets and more support to boost supply of rented homes in the areas they’re most needed.”

The government says that the move will protect genuine small holiday letting businesses across the country and will support local economies by encouraging tourism and by ensuring second homeowners pay a fair contribution towards public services.

Around 65,000 holiday lets in England are liable for business rates of which around 97% have rateable values of up to £12,000. Currently there is no requirement for evidence to be produced that a property has actually been commercially let out.

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