Research from Colliers explained that under current regulations, property owners who make their properties available to rent as holiday lets for 140 days of the year and let them commercially as self-catering accommodation for short periods of 70 nights or more can claim they are a small business.
Therefore, they can choose to pay business rates instead of council tax. This means they can claim for relief on 100% of the business rates payable if their properties have a rateable value of less than £12,000.
It added that the situation is “exacerbated” by the government allowing local councils to elect to charge double council tax on second homes in England and higher rates in Wales.
The properties with a rateable value between £12,000 and £15,000 are entitled to relief on a sliding scale in line with current business rate relief policy.
Looking at England and Wales, the firm said there are 74,838 holiday properties in the business rate lists that are eligible for 100% business rate relief, so they do not pay business rates or council tax.
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The research said this was down on last year, but Colliers expected the number to increase as the implications of double council tax take effect.
Colliers found that in the South West, which covers Cornwall, Devon, Dorset and Somerset, there were 21,678 properties on the list claiming 100% business rates, a fall from 23,000 properties last year.
The company said that given local authorities in the South West are now charging double council tax on second homes, if these 21,678 properties paid council tax (at Band D levels), the local councils would benefit by over £105m.
However, currently neither business rates nor council tax are paid by the owners.
In Cornwall, 10,731 holiday let properties do not pay either business rates or council tax, due to the virtue of being holiday lets and classified as non-domestic.
Colliers estimated that if these properties paid double council tax, over £52m of extra income would be raised every year in Cornwall alone, which would be a great support for local services.
‘The problem is not second homeowners’
John Webber, head of business rates at Colliers, said: “Although current measures in place are tighter than they have been in the past, they are just not strong enough to deter second property owners ‘flipping’ into the business rates list and thus reducing the local authority’s ability to collect funds. Local authorities seem to have managed to return some properties to the council tax lists, but this is still not enough.
“A second homeowner can still let out their property for only 10 weeks of the year and therefore avoid paying any business rates or council tax. The fact that the number of properties entering the business rates lists remains high is a testament that the measures are not working.”
Webber added that the new policy towards second homes is “making the situation even worse”.
“The government has continued the Conservative policy of allowing local authorities the right to charge double council tax on second homes, which it defines as ‘furnished, for own personal use but not a main residence’. This will have a major impact on England and Wales’ second homeowners, who will be considering all their options,” he said.
Webber said Cornwall council believing doubling council tax would help the local housing crisis are “living in ‘cloud cuckoo land’”.
“Offering either double tax or no tax will only encourage even more people to try to flip from council tax to business rates. And even if some second homeowners are deterred and sell up and leave the area, locals are unlikely to be able to afford such housing and local businesses that were supported by these owners and their properties will also suffer, depleting the tax take even further,” he noted.
Webber continued: “Despite posturing, little is being done by the government 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.
“The local tax burden remains weighed onto residents or other types of businesses that are struggling to pay their council tax or business rates bills, which have risen substantially in this last year. Meanwhile, agents selling properties in popular domestic holiday areas positively advertise the business rates savings advantages of gaming the system.
“And while local authorities may be compensated by central government in some respects for these losses in council tax, the point is less money will be collected locally, which will mean less to spend on services or on affordable housing that local residents actually need.”
He added that politicians “bicker about the lack of social housing in places like Cornwall and portray people buying second homes as the villains”.
“Yet if Cornwall council had been able to charge holiday let owners at least the same as a council taxpayer, they would have received over £150m of extra income in the last five years alone, which they could have spent on building affordable housing in the county.
“The problem is not second homeowners; it is politicians failing to understand the issues and having the courage to do something about it. The government should reform the whole system and do it thoroughly,” he noted.
