Gove closes holiday let tax loophole

The government has made a move to close a tax loophole for owners of second homes.

Holiday let loophole

Housing secretary Michael Gove says under new rules, second homes that are declared as holiday lets must be rented out for a minimum of 70 days a year.

If they are not, they won’t qualify for business rates and will be subject to a higher council tax.

The move is in an effort to stop owners of second homes in England from avoiding paying council tax by declaring an intention to let the property out to holidaymakers and leaving the property vacant.

This rule would come into force from April 2023, where homeowners must prove that their properties are let for the 70 day period each year.

To qualify for business rate tax, holiday let owners will be required to provide evidence, including advertisements for the property, letting details and receipts.

They will also have to show that their properties were available to be rented out for at least 140 days a year.

Gove said:

“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.”

Motivation

This move to close the tax loophole comes from growing pressure from local groups in popular holiday destinations.

Areas such as Cornwall, Devon, the Lake District, Suffolk, West Sussex and the Isles of Scilly are reporting that local people are unable to afford homes due to property price increases.

The government hopes the move will target second homeowners who “avoid paying their fair share towards local services”.

Kurt Jansen, director of the Tourism Alliance commented on how the move, whilst needed to assist locals, won’t affect genuine holiday let businesses:

“It is [recognized] 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 support local economies by encouraging tourism and by ensuring second homeowners pay a fair contribution towards public services.”

Paul Ankers, head of Vantage Accounting had the following reassuring message for holiday let landlords:

“Whilst the rule change here will mean some who let their property as a holiday let will be worse off, those owning properties for residential lettings will be unaffected. Those operating as a business (i.e. B&Bs) will hopefully see this as a positive move as it will narrow the cost gap between them and the occasional holiday let homes.

“It is common for the government to announce rule changes, and as many clients have told me over the years, it’s important to have a trusted accountant on board who knows the latest rules so that you can be sure you are both compliant and tax efficient.”

This information is intended to inform, Commercial Trust Ltd. is unable to give tax advice. Speak to a tax advisor before making any decisions.