Legal loophole benefiting holiday home owners may soon close

Holiday Homes in Mevagissey Harbour, Cornwall
Holiday Homes in Mevagissey Harbour, Cornwall

In our article ‘why do we need new homes?’ we identified tax evasion over business rates and council tax by landlords as one of the problems contributing to the current lack of affordable housing supply.

We said: “The government hasn’t yet addressed the tax relief that second homes attract if they can be considered a business. Business rates are not payable on a property with a rateable value of £12,000 or less. And for properties with a rateable value of £12,001 to £15,000, the rate of relief is graduated between 100% and 0%.”

A current loophole in the law allows owners of holiday homes to register their property for business use so they can enjoy small business rate relief and, as such, avoid paying both council tax and business rates.

At last, ministers have begun to address the issue, which essentially encourages holiday home owners to avoid paying taxes.

MP for St Austell and Newquay, Steve Double, raised the issue at Prime Minister’s Questions at the end of January 2018.

He said: “Holiday homes in Cornwall are a mixed blessing. They provide important support to our local economy, but they also take up vital housing stock and push up prices beyond the reach of many local people. In addition, many people avoid paying council tax on them by switching them to business use and then enjoying the benefits of small business rates relief. Does my right Honourable Friend agree that that is unacceptable? Will he use his good offices to help the Government find a way of closing the loophole?”

Councils in tourist areas lose substantial amounts of revenue as a result of the practice, which Mr Double pointed out was unfair to the majority of people in Cornwall who pay their local taxes. A Cornwall councillor has estimated that up to £10 million in taxes was lost in the county under the present system.

After PMQs, Mr Double said: “I recently met with the new Local Government Minister and raised this issue. It is clearly an unfair gap in existing regulations and one that needs to be closed as soon as possible.”

“I was pleased to be able to raise the unfairness of this loophole in Parliament today and I will continue to press the government to find a common sense solution that ensures everyone pays their share towards local services.”

Government Minister, Rishi Sunak, has acknowledged there was “scope for ambiguity” and confirmed the situation was being investigated, leading to hopes that legislation might now be tightened.

Back to February 2018 Newsletter