Councils to lose £334m as second home tax raid backfires
Second home owners dodging the double council tax raid will cost local authorities £334m, analysis shows.
A loophole means owners can escape paying four-figure bills by flipping their properties into holiday lets and renting them out for 70 nights of the year.
The move allows the properties to qualify for business rates relief and also exempts owners from paying any council tax at all.
In the past year, the amount of lost council tax revenue has doubled from £170m, according to research by property firm Colliers.
Experts and politicians said the figures proved the tax raid was backfiring.
Kevin Hollinrake, the shadow housing minister, said: 'Labour couldn't even be bothered to carry out any impact assessment, nor have they asked councils to restrict the policy to where there are localised problems in the housing market.
'This policy has massively backfired on them and it will be local people who pay the price.'
In Cornwall, the second home capital of the country, £52m of council tax income will be lost to 10,731 holiday let properties.
John Webber, of Colliers, said: 'The new policy towards second homes is making the situation even worse. 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.
'The problem is not second home owners; it is politicians failing to understand the issues and having the courage to do something about it.'
From April 1, all local authorities were given the option to charge 100pc council tax premium on second home owners under measures brought in by the Conservative government. Those in Wales can charge premiums of up to 300pc.
Some 230 out of 296 councils in England and 20 out of 22 in Wales have imposed this inflated levy with some local authorities in Wales charging even more. Telegraph Money is campaigning for the tax to be scrapped.
A property is considered a holiday let if it is available for at least 140 nights and is actually let for 70 in one year.
The council uses the property's rateable value – based on its type, size, location and how much income you would make from letting it – to work out your business rates bill.
Many second home owners will qualify for small business rates relief, which offers up to 100pc relief, if the property is the only one they let.
For properties with a rateable value of £12,001 to £15,000, the rate of relief will go down gradually from 100pc to 0pc. For instance, if your rateable value is £13,500, you'll get 50pc off your bill.
In England and Wales, there are an estimated 73,838 holiday let properties that qualify for business rates relief. While this number has fallen from 80,000 last year, due to tougher restrictions, Colliers now expects numbers to increase because of the double tax policy.
Before 2023, homeowners simply had to declare an intention to let a property to holidaymakers to qualify for business rates relief.
In her maiden Budget, Rachel Reeves, the Chancellor, ended the favourable tax treatment of furnished holiday lets, which came into effect on April 6, to encourage landlords to let to long-term tenants.
Despite stricter criteria, the number of properties claiming 100pc business rates in the south west of England has only slightly fallen, from 23,000 last year to 21,678 this year.
Councillors are calling for the Government to tighten the restrictions.
Peter La Broy, a Cornwall councillor, said: 'Converting homes into small businesses to be liable for business rates is simply tax avoidance. I will be relentless in lobbying to close these loopholes.'
Mike Stoddart, an independent councillor in Pembrokeshire, said he believes 'there is quite a bit of tax avoidance along the lines' of flipping to business rates in the county.
The Welsh government has already taken efforts to close this loophole, by raising the qualifying threshold for a holiday let from 70 days to 182.
A government spokesman said: 'We've abolished the furnished holiday lets tax regime so landlords are not incentivised to rent homes as holiday lets, and will introduce a short-term let registration scheme to protect communities.
'We have already introduced tougher rules to make sure that second homes cannot be eligible for business rates unless they have rented out as holiday lets for at least 70 days last year and keep any further action under review.'
The Local Government Association was contacted for comment.
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