Second-home owners who rent out their properties to cut their tax bills face a crackdown under Treasury proposals to stop them avoiding council tax.
Currently people who own an additional home in England can register it as a business as long as they make it available to holidaymakers for at least 10 weeks a year, including through platforms such as Airbnb.
That makes them liable for business rates, rather than council tax – but if they claim small business rates relief (SBBR), the actual amount they pay in rates will end up being minimal or even zero.
This scheme has become increasingly popular in recent years, as councils in holiday hotspots have charged higher rates of tax on people who do not live in their communities year-round. Second home owners often argue they bring other benefits to areas such as higher spending in shops and hospitality venues.
As of last year, there were nearly 80,000 holiday lets registered for business rates in England, with the vast majority eligible for some level of SBRR rather than paying a full tax bill.
Now the Government is considering overhauling the tax regime to close this loophole and impose greater levies on people “whose main aim is not to operate a local business but to manage tax liabilities”. Forcing these second-home owners to pay council tax could cost them thousands of pounds each per year.
The proposed changes form part of the Treasury’s review of business rates in an attempt to ensure that the taxation system is promoting investment and operating fairly.
A document published in late November by Rachel Reeves’s department states: “Currently, a property is eligible to pay business rates (instead of council tax) if, in the past year, it was available to rent for at least 140 nights and actually rented out for at least 70 nights. It will also be eligible for SBRR if it meets the other qualifying criteria.
“The Government recognises the value of positive investment that supports local economies and genuine small businesses. However, concerns have been raised about SBRR being used by second-home owners whose main aim is not to operate a local business but to manage tax liabilities. The Government wants to support businesses investing and growing and wants to ensure that any reliefs in the business rates system are appropriately targeted.”
A consultation is now open on the next steps, which will not be announced before spring. Any change to the tax regime is likely to be confirmed in the 2026 Budget, taking effect from April 2027 at the earliest.
The current minimum 70-day threshold for registering a holiday home as a business was imposed in 2022, in a previous crackdown. That had followed reports that some owners were keeping their properties empty nearly all year round but still managing to avoid council tax.
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The i Paper reported last month that a surge in owners wishing to switch from council tax to business rates had led to long delays at the Government agency responsible for administering the change, with average waits of more than nine months to complete the paperwork.
The move by councils to impose higher taxes on homes which that are left empty much of the time – often double the normal level – has pushed up bills for those who cannot switch to business rates.
For example, a typical band-D property in Cornwall which is used as a second home is liable for nearly £5,000 a year in council tax.
Separately, the Government faces claims that the “mansion tax” on homes worth at least £2m will drag in thousands more people than previously expected. The Times reported that automated valuations were likely to overvalue properties by tens of thousands of pounds, and could result in large bills for those who end up just over the threshold.
The body responsible for the valuations pointed out that as well as using “modern technology and industry standard techniques”, they also inspect properties in person “where needed.”
The i Paper contacted the Treasury for comment.
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