Councils losing millions due to holiday homes loophole

Colliers has estimated that the total loss to local authorities from business rates relief for holiday lets in England and Wales alone is currently around £110 million a year.

Property owners who make their properties available to rent as holiday lets for 140 days of the year can claim they are a small business and as such can elect to pay business rates instead of council tax. As small businesses they can claim for relief on 100 per cent of the business rates payable if their properties have a rateable value of less than £12,000.

Colliers says that those properties with a rateable value between £12,000 and £15,000 are also entitled to a relief on a sliding scale in line with the government’s business rates relief policy.

The issue is most acute in Cornwall where 10,701 holiday let properties do not pay either business rates or council tax, due virtue of being holiday lets. Colliers estimate that if these properties paid council tax, the local authority would receive £18 million extra income every year. This is despite the boom in house prices as the pandemic and consequent trend to ‘Staycation’ has caused residential property markets in UK holiday destinations to rise steadily, particularly the South West, especially among second homeowners. House prices in Cornwall alone rose over 14 per cent in the last year.

John Webber, head of Business Rates at Colliers, said: “Despite posturing to look into this loophole whereby second home owners are able to avoid paying both council tax and business rates by stating their homes are available to rent for 140 days, it is astonishing that nothing has been done by the government in the last four years to reform the system -particularly in England.** Estate agents selling properties in popular domestic holiday areas positively advertise the rates savings advantages, which has probably contributed to the rise in house prices.

“Given the pressure on local authority finances, we find it incongruous that this loop hole has not been closed and it is unfair that the local tax burden remains weighed onto local residents or other types of businesses that are struggling to pay their bills.

“We want to make it clear we don’t blame the homeowners that take advantage of this tax break through making their properties available to let- this could be considered sensible tax planning. However we do blame the government for over-seeing this mess which inevitably leads to friction in many coastal resorts. Most second home owners would gladly pay the minimum of council tax and neither need or expect this windfall at a time when public services are under enormous pressure.

“The fact that this trend of flipping from the council tax to the business rates list is growing every year is also a real cause of concern. A £110 million loss of council tax every year will soon mount up over the years. The government really needs to reform the system and consider the state of local authority finances when it announces its business rates reforms this Autumn.”