Tax loophole closed for second homes in England

Owners of second homes will no longer be able to use a tax loophole by claiming their property as a holiday let.

The tough new measures will mean second homes left empty can no longer be claimed as holiday lets to qualify for a business rates exemption.

By introducing this new legislation, the government wants owners of second homes to pay their fair share towards the cost of local services.

Second-home tax avoidance has become a particular problem in popular tourist destinations including Cornwall, Devon, the Lake District, Suffolk, West Sussex and the Isles of Scilly.

Under current rules, second homeowners in England can avoid paying council tax by declaring an intention to let the property to holidaymakers. Instead of council tax, the property becomes subject to small business rates relief, often resulting in no tax paid to the relevant local authority.

However, in some cases, second homeowners make this declaration and then leave properties empty for much of the year, unfairly benefiting from the tax break.

Following a consultation, the government is changing the tax system for these properties, which means second homeowners must pay council tax if the property is not a genuine holiday let.

The new law will apply from April 2023. At that time, second homeowners must prove holiday lets are being rented out for a minimum of 70 days a year to qualify for small business rates relief, where they otherwise meet the criteria.

Evidence such as the website or brochure advertising the property, letting details and receipts must be provided to claim small business rates relief.

Another criteria introduced from April 2023 is for the property to be available to be rented out for at least 140 days of the year.

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.”

By changing these rules, genuine small holiday letting businesses will be placed on a level footing. Local economies will receive more income through increased tourism or council tax paid to local authorities.

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 been commercially let out.