The Government’s Business Rates System is giving holiday home owners, who make their properties available to rent, a windfall of millions of pounds in tax reliefs at the expense of those businesses paying full business rates, according to Colliers International, the global commercial real estate agency and consultancy.
In the current business rates environment, second home owners, who make their properties available to rent as holiday lets for 140 days of the year, often qualify as small businesses, and are entitled to relief on 100% of the business rates payable if their properties have a rateable value of less than £12,000. And those whose properties have a rateable value between £12,000 and £15,000 are also entitled to relief on a sliding scale, in line with the Government’s small businesses rates relief policy.
Colliers analysed the potential rate bill of 7300 holiday homes in Cornwall and found that over 7150 of those second home owners had properties with a rateable value of less than £12,000 and so are paying nothing in business rates. This means that they are being subsidized by £13.2 million, compared to if they were paying their business rates. Over the five-year rating list, this equates to £66 million. If they were paying the equivalent Council Tax they would pay up to £3371 (Band H 2017/18) per property, and with the average Council Tax of £2036 in 2017/18, receive a saving of £14.6 million or £72.8 million over 5 years.
Adding in the properties on the sliding scale of business rates relief and then multiplying this across the other counties in the UK where second home owners offer holiday lets and receive the rates relief, it appears that second home owners are being subsidized by many millions of pounds.
John Webber, Head of Rating at Colliers International commented, ”The Government’s Business Rate system is totally unjust and needs serious reform. It’s a scandal that those who have holiday homes and rent them out are able to take advantage of the Small Business Rates Relief and so pay less tax, putting the burden of the rates bill onto other businesses who are struggling to pay their bills. The 2017 business rate revaluation resulted in many businesses being hammered when revalued, particularly the smaller specialist high street retailers in the major cities, but also other businesses that provide jobs and make major contributions to the economy. I doubt many second home owners would begrudge paying these charges but if the Government is foolish enough to allow this to happen then it is the Government’s running of the system that should be seriously questioned’
He added, “We do not criticise second home owners that take advantage of this tax break through making their properties available to let- that could be considered sensible tax planning. But we do criticise that the Government has allowed this situation to happen and has ignored the rating industry’s calls for root and branch reform of the business rates system. “
Colliers Manifesto for Business Rates Reform includes:
- More frequent revaluations, three-yearly, at least, by 2022;
- Increase funding for VOA in order to deal with existing appeals’ backlog;
- Release VOA from pressure exerted by local councils and HM Treasury;
- Introduce a register of appeals professionals – removing the ‘cowboy’ element;
- Root and branch reform of current business rates exemptions and reliefs.