Plans to crack down on holiday home owners who pay business rates rather than council tax have been branded “punitive” by those who work in the industry.
Currently people who own a second 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.
It means they are liable for business rates rather than council tax, but if they claim small business rates relief (SBBR), the actual amount they pay in rates can end up being minimal.
There were almost 80,000 holiday lets registered for business rates in England last year.
But under new Treasury proposals, exclusively revealed by The i Paper, additional home owners who rent out their properties may no longer be eligible for business rates and would instead have to pay council tax.
Some local authorities charge twice the normal council tax for second properties, known as the second homes premium.
‘Punitive measures’
Liam Grover, managing director of serviced accommodation firm Wessex Quarters managing short-term rental and holiday let properties in Salisbury, Wiltshire and Weymouth, Dorset, told The i Paper the plans outlined are “punitive”: “They can’t be interpreted any other way.”
He said: “Laws, regulations and rules are already in place to ensure the right people pay council tax and the right people pay business rates.
“The doubling of council tax for second homes is entirely punitive and designed to punish those people who have invested in second homes and to force them to sell up.”
The Government is considering overhauling the tax system to close what has been termed a “loophole” and impose greater levies on people “whose main aim is not to operate a local business but to manage tax liabilities”, as part of a review of business rates.
Ultimately, the planned changes are likely to force some second property owners to sell up rather than face further financial costs. Mr Grover said some of his clients are already selling up.
“We manage our clients’ properties well and advise them on what to do, but some are selling not because of the money, but because they feel targeted,” he said.
A Treasury document published in late November stated: “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.”
‘Enforce current rules’
However, Mr Grover said: “This isn’t a ‘loophole’ – you either qualify for business rates or you don’t.
“If you don’t qualify for business rates and you apply for them and then apply for SBRR, you are in breach of the rules and there should be consequences for doing so.
“What the government should be doing is enforcing the rules that already exist.”
He pointed out that the Government needs to “differentiate between second home owners and short-term rental/holiday home businesses”.
“There are already mechanisms in place to do this, it is quite clear what the difference is,” he said. “You either qualify for business rates… or you don’t.”
He said that a well-run and managed short-term rental or holiday let can bring six times more value to a local economy than a standard owner-occupied property.
Those renting the property are, he said, more likely to buy their groceries locally than get it delivered by a supermarket, explore the local area, and spend in shops as they go.
“These properties create jobs by employing housekeepers, cleaners, gardeners and handymen,” he added. “They bring in money from others parts of the country and from around the world, boosting the local and national economy as well as supplementing the income of the owners.
“In 2021, this sector contributed £27.7bn to the UK economy and accounted for 37 per cent of overnight stays.”
For owners letting out their second property, the changes will mean extra costs but by how much is still unclear.
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Mr Grover said: “Right now, we are in the process of trying to figure that out.
“Rachel Reeves and Keir Starmer waxed lyrical about how they are freezing business rates, what they failed to mention was that they are changing the calculation/multiplier that decides how much business rates you pay on a property. “
An HM Treasury spokesperson told The i Paper: “Following concerns that second homeowners are using Small Business Rates Relief to manage tax liabilities instead of operating a local business, we are consulting to ensure that the system is supporting genuine small businesses and homeowners are paying their fair share towards local services.”
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