Despite promises for reform, the Government’s Business Rates System is still giving many holiday home owners the opportunity to avoid paying council tax, by making their properties available to rent.
According to global commercial real estate agency and consultancy, Colliers International, this is costing local authorities millions of pounds of lost revenue in a period when local authority funding is already tightly stretched.
Currently, second home owners, who make their properties available to rent as holiday lets for 140 days of the year, can claim they are small businesses, and as such can qualify for relief on 100% of the business rates payable if their properties have a rateable value of less than £12,000. And those whose properties have a rateable value between £12,000 and £15,000 are also entitled to relief on a sliding scale, in line with the Government’s small businesses rates relief policy.
South West of England analysisColliers has analysed the rating lists for the South West of England (Cornwall, Devon, Somerset and Dorset) and have found that in the last two years since the 2017 Rating list was opened, (1st April 2017), 3094 new properties have entered the non-domestic (business) rates list with a rateable value of less than £12,000 and so do not need to pay either council tax or business rates. Based on an average council tax rate of around £2,200 per property per year, this means these owners have been able to avoid paying their local councils £6.81 million in council tax each year. Over the four years of the list this would mean the local authorities are losing out by £27.23 million in council tax income.
The situation is particularly acute in Cornwall where 1293 new holiday homes have entered the rating list since April 2017. These new holiday homes alone would have been due to pay around £2.58 m in council tax each year - or £11.4 million during the period of the list.
And of course, these figures do not include all those short term let holiday homes that were already in existence before April 2017, which are still claiming business tax relief and so are not paying either business rates nor council tax.
Taking Cornwall again, Colliers estimate that there are around 8467 holiday homes available for let which have a rateable value of less than £12,000, and are therefore are paying neither business rates nor council tax. By claiming such properties are businesses, Colliers has calculated that this would mean Cornwall loses out on £18.6 million a year in council tax revenue. This multiplies up to £74.5 million over the four-year rating list.
Adding in the properties on the sliding scale of business rates relief and then multiplying this across the other counties in the UK where second home owners offer holiday lets and receive the rates relief, it appears that second home owners are being subsidized by many millions of pounds, at the expense of local authorities’ coffers.
Business Rates are unjust and need serious reform
John Webber, Head of Business Rates at Colliers International said, “The Government’s Business Rate system is totally unjust and needs serious reform. It’s a scandal that the government has done nothing to review reliefs and exemptions, therefore allowing those who have holiday homes and rent them out still able to take advantage of the Small Business Rates Relief and so pay less or no tax, putting the burden of local authority funding on local residents or other businesses who are struggling to pay their bills. Despite consultations and promises to look into the system over the past two years, nothing has been done.”
He added, “This is not to say we criticise second home owners that take advantage of this tax break through making their properties available to let- that could be considered sensible tax planning. However, we do criticise a government whose obsession with Brexit has meant nothing has been done to properly address how local authorities are funded. The Government has continued to ignore the rating industry’s calls for root and branch reform of the business rates system. It will be interesting to see if either Jeremy Hunt or Boris Johnson have time to consider a review of the business rates system whilst lying on a beach in the west country this summer!”