Landlords and second homeowners exploit tax loophole that costs councils millions

Landlords and second homeowners exploit tax loophole that costs councils millions

0:05 AM, 5th July 2023, About 8 months ago 9

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Thousands of landlords and second homeowners are exploiting a legal loophole to avoid paying council tax, leaving local authorities with a huge shortfall in revenue, the Daily Telegraph reveals.

The loophole allows owners of holiday lets and second homes to register as small businesses and pay lower business rates instead of council tax, if they rent out their properties for at least 70 days a year.

And, if their properties have a rateable value of less than £12,000, they can claim 100% tax relief and pay nothing at all.

Costing councils in England and Wales around £170m a year

Now real estate firm Colliers says the loophole is costing councils in England and Wales around £170m a year – up from 2022’s figure of £150m.

And, the firm warns, growing numbers of second homeowners and landlords with holiday lets are switching to business rates.

Colliers says there are more than 85,000 holiday let properties in the business rates lists that are eligible for 100% business rates relief.

The move would see them not paying council tax or business rates.

In 2021, there were 73,000 properties not paying, that has now risen to 79,150.

‘Little has been done by the Government’

The head of business rates at Colliers, John Webber, told the Telegraph: “Despite posturing, little has been done by the Government in the last five years to properly reform the business rates system.

“The fact that the number of properties entering the business rates lists is still growing, is a testament that the deterrent is not working.”

The data also shows there are 13,085 properties in Somerset, Dorset, Devon and Cornwall that are claiming 100% business rates relief.

That’s more twice the number claiming relief in 2017, when the threshold for qualifying properties’ rateable values was doubled from £6,000 to £12,000.

The figures show that the issue is a problem in Cornwall where there are 12,065 holiday let properties not paying council tax or business rates.

Colliers estimate that if these Cornish properties did pay, more than £27 million of extra income would be raised each year.

Practice has been condemned by Michael Gove

The practice has been condemned by Levelling Up Secretary Michael Gove, who said he wants to protect local people from being ‘pushed out of cherished towns, cities and villages by huge numbers of short-term lets’.

However, some local councils have tried to crack down on second homeowners by increasing council tax on second homes, but this has backfired as more owners have switched to business rates.

For example, the Labour-led Government in Wales approved powers to increase council tax on second homes by up to 300% from April this year, but this has resulted in a loss of £2.4m in council tax revenue, according to the Welsh Local Government Association.

According to the Office for National Statistics, there were 23,000 second homes in Cornwall in 2019, accounting for 10% of all dwellings – but only 8,000 of them are registered for council tax.

The rest are either registered for business rates or not registered at all.

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Darren Peters

10:40 AM, 5th July 2023, About 8 months ago

Councils exploit property owners by whacking up council taxes for no increase in service and fall victim to Laffer curve economics.

boo hoo.

Freda Blogs

10:48 AM, 5th July 2023, About 8 months ago

Whilst I don’t agree that these businesses should benefit from Council services but pay nothing for them, it’s not a legal loophole - it’s the law, and people are simply complying. Tax avoidance is legal, tax evasion is not.

By the way: Government - don’t forget that for many landlords it was your constant fiddling with, and attacks on, the PRS that caused many to migrate away from long term lets into the holiday let business. You reap as you sow, but you don’t seem to be getting the message with the Renters Reform Bill, are you?


14:41 PM, 5th July 2023, About 8 months ago

It's not exploiting but following the rules. My council doubled the council tax and when I phoned them they said I have to register for business rates and you won't have to pay any council tax or rates as a small business. i am happy to pay council tax but not allowed as it is either double or nothing. The government really do get themselves in a mess. Gove doesn't even understand it, how can he condemn something that is law


20:31 PM, 5th July 2023, About 8 months ago

Council tax should be for the service they provide ie waste disposal and roads ( of which are only used for half the year by holiday homes) it should not to used penalize the people who bring tourists to the struggling economy of some of these far away places .You have to let your holiday home for over 70 nights and be available to let for over 140 nights to comply with business rates
What happens in Spain? they don't hate the hands that feed them but i guess they have all year rental season .
I bought a house on a site made for holiday makers so as not to buy up local housing stock- worst investment I ever made .

G Master

6:50 AM, 6th July 2023, About 8 months ago

Makes you wonder who is on landlord's side now.

There is no news about how many tenants are claiming benefits that they are not entitled to and as a result not paying council taxes


14:42 PM, 6th July 2023, About 8 months ago

Estate firm Colliers trying to do the dirty on short term let landlords ,shame on them ....
I am not a short term let landlord,( sold most of them recently kept the two best ones ) but providing statistics like this will only help the over bearing ,money grabbing councils and inept Government.


18:07 PM, 7th July 2023, About 8 months ago

How can you find out how much business rates would be. The government tools only show existing business rates?


21:42 PM, 7th July 2023, About 8 months ago

The word 'Loophole' makes it sound like this is a dishonest practice. Its not. The Landlords in this situation are paying the correct tax as per the law.

Judith Wordsworth

9:34 AM, 8th July 2023, About 8 months ago

Holiday lets are a business. Short term serviced rentals are a business.
No loophole.

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