The Government’s Business Rates System is still 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.
Currently, second home owners, who make their properties available to rent as holiday lets for 140 days of the year, can generally 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 rates bills of 7300 holiday homes in Cornwall and found that over 98% 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.
And by claiming they are businesses, their owners are not paying Council Tax either and Colliers has calculated that the Government is thus missing out on £14.6 million a year or £72.8 million over 5 years, compared to if they did pay Council tax.
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. According to the Sunday Times, yesterday, 47,307 holiday lets in England pay small business rates rather than council tax and the loop hole is enabling second home owners to “dodge £80 million of council tax”. Residents in Cornwall and Suffolk in particular are leading the call for reform of the loophole that enables many second home owners to avoid paying both taxes, whilst taking advantage of local amenities.
John Webber, Head of Business Rates at Colliers International said, “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 specialist high street retailers in the major cities, but also other businesses that provide jobs and make major contributions to the economy. We are seeing the fall-out in the retail and the hospitality market nearly every week, as some big name either goes into CVA or shut outlets.”
He added, “Whilst 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- we do criticise the Government that has done nothing to close this loophole despite constant flagging. The Government has continued to ignore the rating industry’s calls for root and branch reform of the business rates system. Something really does need to be done!”