Government review of tax loophole for second homes

There are large numbers of second and holiday homes in many of the villages on the Northumberland coast.
There are large numbers of second and holiday homes in many of the villages on the Northumberland coast.

A business-rates loophole which could be costing local authorities millions in lost council tax is being reviewed by the Government.

Currently, owners of second homes – of which there are large numbers in Northumberland, particularly on the coast – pay council tax, including when the property is available to rent infrequently during the year.

Properties are valued for business rates when owners declare it is available to let as holiday accommodation for 140 days or more in a year.

But those registered for business rates are likely to qualify for small business rate relief – no tax is due on properties with a rateable value of £12,000 or less.

Around 47,000 holiday lets in England are liable for business rates, of which around 96 per cent have rateable values of £12,000 or less.

At the moment, there is no requirement for evidence to be produced that a property has actually been commercially let.

Genuine businesses can claim the relief to which they are entitled, however, the Government is aware of concerns that owners of second homes which do not fall into this category could exploit the system by not paying council tax while still using local services.

A consultation, which was launched earlier this month, is seeking views on whether the current criteria should be strengthened to ensure second-home owners are contributing to the local economy through the proper payment of council tax or business rates – for those genuinely renting out their property and supporting tourism.

It will run until January 16 and can be found online at https://tinyurl.com/ybmsm6hh
Local Government Minister Rishi Sunak said: “We’re aware of concerns that the current arrangements for valuing second homes for business rates and claiming relief do not provide strong enough protections against abuse.

“We are seeking views on whether we should strengthen the checks already in place to ensure second-home owners have to pay council tax, while ensuring genuine holiday-let businesses are able to demonstrate they are eligible for business rates relief.”

A Northumberland County Council spokeswoman said: “We are looking at the Government’s consultation and will be agreeing a response from the council in due course.”

The authority is already looking to try to limit the numbers of second homes in Northumberland through the planning system. As previously reported, its new local plan includes a specific policy to prevent more second or holiday homes in communities where there are already significant numbers of homes ‘with no usual residents’.

Earlier this year, the North Northumberland Coast Neighbourhood Plan, which encompasses the villages of Bamburgh, Beadnell and Seahouses, came into force. One of its key policies is that any new homes in the three parishes must be permanently occupied as principal residences, that is, lived in full-time and not second or holiday homes.

The county council, through its draft plan, is seeking to replicate this example all over the county for ‘any parishes with 20 per cent or more household spaces with no usual residents’.

Ben O'Connell, Local Democracy Reporting Service