Tax Shock - property firm wants landlords to pay even more

A long-standing and respected property firm has slammed the government for presiding over the “mess” of taxes applied to holiday lets and second homes.   

Colliers claims local and central governments are losing out on millions of pounds of council tax income because the business rates system is still giving many holiday home and second homeowners the opportunity to avoid paying, provided they make their properties available to rent and do so for 10 weeks of the year.

Colliers estimate the total loss to government due to the system of business rates relief for holiday lets in England and Wales alone is now around £170m a year.

Property owners who make their properties available to rent as holiday lets for 140 days of the year can claim they are a small business and as such can elect to pay business rates instead of council tax. However as small businesses they can claim for relief on 100 per cent of the business rates payable if their properties have a rateable value of less than £12,000. 

Those properties with a rateable value between £12,000 and £15,000 are also entitled to a relief on a sliding scale in line with the government’s business rates relief policy.

Colliers has analysed the rating list for Cornwall, Devon, Dorset and Somerset where 13,085 new properties, each claiming 100 per cent business rates relief, have entered the list in the last six years. This means the number of properties claiming such relief in those four counties has more than doubled since 2017. 

The South West now has 23,817 self-catering holiday let properties in the rating list that are eligible for 100 per cent business rates relief and so don’t pay the tax. Colliers has estimated that if these properties at least paid council tax, the local councils would benefit by over £53m of income. 

The company says the issue is most acute in Cornwall where 12,065 holiday let properties do not pay either business rates or council tax, due virtue of being holiday lets and classified as non domestic. Colliers estimate that if these properties paid council tax, over £27m of extra income would be raised every year in Cornwall alone.

The government has taken some steps to close abuse of this loophole and since April this year a property can only qualify to be in the business rates list if it is made available for rent for 140 days a year and let out for short periods totalling at least 70 days.

But John Webber, head of business rates at Colliers, says: “These measures are not strong enough to deter businesses “flipping” into the business rates list and thus reducing the local authority’s ability to collect funds. A second homeowner can still let out their property for only 10 weeks of the year and would be able to avoid paying any business rates or council tax. The fact that the number of properties entering the business rates lists is still growing, is a testament that the deterrent is not working.“

Looking at England and Wales as a whole, Colliers says there are now over 85,044 holiday let properties in the business rates lists in England and Wales that are eligible for 100 per cent business rates relief, and as such do not pay business rates or council tax. Colliers estimate this is reducing income to local authorities of around £170m a year.

Webber continues: “Despite posturing, little has been done by the government in the last five years to properly reform the business rates system. This is especially extraordinary given the pressure on local authority finances, and the subsequent need for central government to fill any gaps.”

But Webber is also critical of councils that have championed increased council tax on holiday lets and additional homes.

He says: “Cornwall Council by increasing council tax by the maximum allowable this year while at the same time cutting services, are simply missing the point if they believe ‘quadrupling’ council tax on second homes is the answer. Doing that will only force even more people to flip from council tax to business rates.  I am not sure it takes a genius to work that one out.

“While local authorities may be compensated by central government in some respects for these losses, the point is less money will be collected locally which will mean less to spend on services- unless of course the magic money tree is being shaken by the cash fairies in Whitehall.”

He concludes: “Two years ago, we estimated the loss of income to government was £110m, last year it was £150m and this year it will be £170m.”

And in an outspoken statement accompanying the analysis of ‘missed’ tax, the company says: “Colliers does not blame the homeowners that take advantage of this tax break through making their properties available to let- this could be considered sensible tax planning. However, we do blame the government for over-seeing this mess which inevitably leads to friction in many coastal resorts. Most second homeowners would accept the need to pay the minimum of council tax and neither need nor expect this windfall at a time when public services are under enormous pressure.”

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