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Government shuts the door on second home tax loophole

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Genuine small holiday letting businesses in England to be protected by closure of second home tax loophole

second homeOwners of second homes in England who abuse a tax loophole by claiming their often-empty properties are holiday lets will be forced to pay under tough new measures.

The new rules, to be introduced in April 2023, were announced today in a statement from the Department of Levelling Up, Housing and Communities and Michael Gove MP.

In summary:

  • Homeowners who leave properties empty while pretending to let them to holidaymakers will be targeted
  • Under the new rules, holiday lets must be rented out for a minimum of 70 days a year to qualify for business rates, which often brings financial advantages
  • Changes to tax rules will protect genuine holiday lets and benefit popular holiday destinations, including Devon, Cornwall and the Lake District

Owners of second homes who abuse a tax loophole by claiming their often-empty properties are holiday lets will be forced to pay under tough new measures announced by the government today (14 January 2022).

The changes will target people who take advantage of the system to avoid paying their fair share towards local services in popular destinations such as Cornwall, Devon, the Lake District, Suffolk, West Sussex and the Isles of Scilly.

How did the second homes tax loophole work?

Currently, owners of second homes in England can avoid paying council tax and access small business rates relief by simply declaring an intention to let the property out to holidaymakers. However, concerns have been raised that many never actually let their homes and leave them empty and are therefore unfairly benefiting from the tax break.

Following consultation, the government will now bring changes to the tax system, which will mean second homeowners must pay council tax if they are not genuine holiday lets.

What’s changing for owners of second homes who are registered for business rates?

From April 2023, second homeowners will have to prove holiday lets are being rented out for a minimum of 70 days a year to access small business rates relief, where they meet the criteria.

Holiday let owners will have to provide evidence such as the website or brochure used to advertise the property, letting details and receipts.

Properties will also have to be available to be rented out for 140 days a year to qualify for this relief.

Government backs small business including responsible short term lets

Secretary of State for Levelling Up Rt Hon Michael Gove says:

“The government backs small businesses, including responsible short-term letting, which attracts tourists and brings significant investment to local communities.

However, we will not stand by and allow people in privileged positions to abuse the system by unfairly claiming tax relief and leaving local people counting the cost.

The action we are taking will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.”

Tourism industry welcomes clear distinction between second homes and genuine self-catering businesses

Kurt Jansen, Director of the Tourism Alliance says:

“Establishing these new operational thresholds for self-catering businesses is welcomed by the tourism industry as it makes a very important distinction between commercial self-catering businesses that provide revenue and employment for local communities, and holiday homes which lie vacant for most of the year.

It is recognition that tourism is the lifeblood of many small towns and villages, maintaining the viability of local shops, pubs and attractions.

The move will protect genuine small holiday letting businesses across the country and will support local economies by encouraging tourism and by ensuring second homeowners pay a fair contribution towards public services.

Around 65,000 holiday lets in England are liable for business rates of which around 97% have rateable values of up to £12,000. Currently there is no requirement for evidence to be produced that a property has actually been commercially let out.”

This article is only meant as a top line summary of these issues. Need more guidance on whether you should be paying business rates or council tax? We recommend that you seek a professional working in this area. You can also contact the Valuations Agency Office. 

Boshers offer specialist holiday home insurance to holiday let and cottage complex owners across the UK. If you need an insurance quote for your holiday let call us on 01237 429444.

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Impact of second homes on rural and coastal communities

Many people dream of owning a second home in the countryside or by the sea. But are these holiday retreats causing more harm than good?

Countryfile second homes featureIn Sunday’s episode of Countryfile, presenter Charlotte Smith explored the impact of second homes on rural and coastal communities. The reporting was well researched and balanced in our opinion. Have a look for yourself on BBC iPlayer here, the coverage starts at 8 minutes 10 seconds into the programme. This link is only available until September 28th 2014, further to which we have summarised some of the areas covered below.

The impact of second homes

An Englishman’s home is his castle, or so the saying goes and for some, investing in a second home gives you the best of both worlds. Whether a house in the country or a bolthole by the sea, the appeal can be better quality of life, a second income or both. For that reason it’s an idea that many Britons have bought into; 1.5 million people now own a second home in the UK with the number one choice of location, you guessed it, Cornwall with its stunning coastline and picture postcard fishing villages.

In some of the most sort after areas two in five properties are now holiday homes.

While their owners have clearly fallen in love with Cornwall the feeling of the local residents is not always mutual.

Do second homes play a vital role in supporting the local economy?

This episode of Countryfile considers two points of view:

The first takes into account the views of a local family, who cannot see their way back onto the housing market as second homeowners send valuations  skyward.

The second focuses on a Padstow based fisherman, who sees strong demand for his catch and directly attributes this success to local restaurants increasingly filled by the owners of holiday homes and their guests.

This isn’t just about Cornwall either; from Yorkshire to the South Coast, and the Cotswold’s to the Western Isles, there are serious concerns about second homes, despite playing a vital role for some businesses and the local economy.

Communities need tourism to survive.

In Cornwall alone it’s an industry worth £1.8 billion. Expand that across the UK and tourism brings in well over £100 billion a year.

Despite the obvious benefits to businesses, many feel the advantages of second homes are simply not worth the sacrifices they create. Some believe second homes cast a shadow over some of the most beautiful areas of the UK. Demand raises house prices and many who live and work in these areas can no longer afford to stay. On the flip side of the coin others will say that without the money second homes bring them, local economies wouldn’t survive.

Holiday homes employ an army of people, plumbers, housekeepers, gardeners, decorators, holiday letting agents, all these people rely on the work that second homes bring their way!

As an insurance intermediary based in beautiful North Devon, we have driven the growth of our own business by meeting the insurance needs of second home owners who holiday let their rural and coastal properties to paying guests. Whilst we developed our holiday home insurance offering in Devon and Cornwall we now service the holiday home insurance needs of owners who both live and own second homes across the whole of the UK.

A typical second home for which we provide insurance will be let to paying guest for in excess of 30 weeks of the year and also used by their owners for 4 to 6 weeks, sometimes more. No one, least ourselves like to see rural and coastal homes empty for long periods of time, if you own a second home that is not already holiday let, speak to your local holiday letting agent to see if your property is suitable.

For more information on how a specialist insurer can help and support your holiday home business or if you recommendations of holiday letting agents in your area, please give us a call on 01237 429444.

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