Holiday lets: new rules to close tax loophole

Author: Toni Hunter
Toni Hunter

The Government has announced the forthcoming introduction of new rules to prevent abuse of a ‘tax loophole’ associated with holiday lets.

What is a holiday let?

Holiday lets are properties let out, short-term, for the sole purpose of ‘holidaying’. Typically furnished, they should be available to rent for at least 210 days annually.

Exploiting the rules

Currently, second home owners can access business rates relief if they intend to let to holiday makers. An exemption from council tax is also be available. The problem with this, is that it’s open to exploitation.

Some people owning second homes in popular UK holiday destinations are benefitting from local services without contributing towards their provision.

“I am generally not in favour of proliferating legislation, however relying on “intent” leads to subjectivity and abuse. These new requirements for producing evidence should moderate the issue. However, I believe that those who are intent on keeping their business rates status will find ways of complying. Until there are some publicly available cases, leading to penalties, it is difficult to say how this will work. Exemption from council tax will be a strong motivator for some, but simply an additional overhead for those wealthy enough to afford second homes without letting them.” – Toni Hunter, Partner and property specialist.

New legislation to level the playing field

The new rules seek to protect genuine holiday lets and see that second home owners contribute fairly to local facilities.

A property will only be assessed for business rates, rather than council tax, from April 2023, if evidence attests that:

  • it will be available for letting commercially, as self-catering accommodation, for short periods totalling at least 140 days in the coming year
  • during the previous year, it was available for letting commercially, as self-catering accommodation, for short periods totalling at least 140 days
  •  it was let commercially, as self-catering accommodation, during the previous year for short periods totalling at least 70 days

Acceptable evidence might include relevant receipts, or listing details relating to the holiday let in question.

Toni continues, “The Secretary of State for Levelling Up, Rt Hon Michael Gove has said that he “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”. I fear that this is a mere drop in the ocean, in respect of the housing crisis. Those who cannot find an affordable home in the district where they work will consider this a very small victory.

This is substantiated by the staycation ‘boom’, borne of COVID-19, that looks set to stay. Many more people will be tempted by the financial reward and investment opportunity that holiday lets currently present.”

To find out more about how we support property investors and landlords, across Cambridgeshire, Bedfordshire and Hertfordshire, contact us on 01480 426500, or fill in our online enquiry form.

* Contains public sector information licensed under the Open Government Licence v3.0.

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