closing tax loophole on second homes

Owners of second homes in England who claim exemption from council tax by reporting them as holiday lets will in future have to provide evidence of actual letting.

The current rules allow owners to pay business rates instead of council tax if they simply declare an intention to let the property. They can also apply for small business rates relief, and, if they meet the conditions, pay nothing on properties with a rateable value of £12,000 or less.

From April 2023 only genuine holiday lets will be eligible for small business rates relief. Owners will have to provide evidence such as the website or brochure used to advertise the property, letting details and receipts in order to be assessed for business rates rather than council tax. This evidence will have to prove that:

  • The property will be available for letting commercially as self-catering accommodation for short periods totalling at least 140 days in the coming year.
  • During the previous year it was likewise available for short periods totalling at least 140 days.
  • During the previous year it was actually let commercially as self-catering accommodation for short periods totalling at least 70 days.

The Valuation Office Agency will be responsible for determining whether a property should be assessed for council tax or business rates.

Around 65,000 holiday lets in England are liable for business rates of which around 97% have rateable values of up to £12,000. Small business rates relief will usually only be available where the owner has only one holiday letting property, although the relief is retained for 12 months when the owner buys a second property. Relief may also continue on the main property if none of the additional properties have a rateable value above £2,899.

In Scotland if a let self-catering premises is available for 140 days or more a year it may be liable for business rates. Similar changes to those in England come in a year earlier over the border, so from 6 April holiday lets must be booked for a minimum of 70 days in a financial year. The rules in Wales are currently under consultation for similar amendments.

Furnished holiday lettings may qualify for a number of other tax benefits, though the conditions are tight. To qualify, the property must be available for commercial letting for at least 210 days in a tax year and be actually let for 105 days. The owner can claim capital allowances on plant and machinery, as well as capital gains tax reliefs for businesses. The income will also count as earnings for pension purposes.