The tax rules for second-homes are to be reviewed by the Government after a “loophole” was discovered which could be costing local councils millions of pounds each year.
Under current legislation, second-homeowners usually pay council tax on their properties including when the property is available to rent infrequently during the year.
However, the properties may also be eligible for business rates when owners declare their property is available to let as ‘holiday accommodation’ for 140 days or more in a year.
If a property does register for business rates, it may be eligible to qualify for small business rates relief – providing a 100 per cent relief from business rates, meaning no tax is due on properties with a rateable value of £12,000 or less.
According to recent research, around 47,000 holiday lets in England are liable for business rates, with around 96 per cent of those receiving a 100 per cent relief.
The Ministry of Housing, Communities & Local Government, which published the report, said there is currently “no requirement for evidence to be produced that a property has actually been commercially let”.
Concerned that second-homeowners could exploit the system, a consultation has been launched to seek views on whether the current criteria should be strengthened to ensure homeowners are paying the proper rate of tax.
Commenting on the report, Local Government Minister Rishi Sunak MP, 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.”
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