Second-home owners who let their properties out for 140 days a year and register as a small business are benefitting from “a windfall of millions of pounds in tax reliefs”, says commercial real estate firm Colliers International.
Such small lettings operations are entitled to relief on 100% of the business rates payable if their properties have a rateable value of less than £12,000, while those whose properties have a rateable value between £12,000 and £15,000 are also entitled to relief on a sliding scale, in line with the Government’s small businesses rates relief policy.
Colliers checked up on the potential rate bill of 7,300 holiday homes in Cornwall, and found that over 7,150 of those second home owners had properties with a rateable value of less than £12,000 – and so are paying nothing in business rates. If they were paying the equivalent Council Tax, the firm argues that they would pay up to £3,371 (Band H 2017/18) per property, and with the average Council Tax of £2,036 in 2017/18.
This means that these Cornish property owners “are being subsidised by £13.2m”, compared to if they were paying their business rates, and “receive a saving of £14.6m” a year compared to paying Council Tax.
John Webber, Head of Rating at Colliers International: “The Government’s Business Rate system is totally unjust and needs serious reform. It’s a scandal that those who have holiday homes and rent them out are able to take advantage of the Small Business Rates Relief and so pay less tax, putting the burden of the rates bill onto other businesses who are struggling to pay their bills. The 2017 business rate revaluation resulted in many businesses being hammered when revalued, particularly the smaller specialist high street retailers in the major cities, but also other businesses that provide jobs and make major contributions to the economy. I doubt many second home owners would begrudge paying these charges but if the Government is foolish enough to allow this to happen then it is the Government’s running of the system that should be seriously questioned.
“We do not criticise second home owners that take advantage of this tax break through making their properties available to let- that could be considered sensible tax planning. But we do criticise that the Government has allowed this situation to happen and has ignored the rating industry’s calls for root and branch reform of the business rates system.”
Colliers Manifesto for Business Rates Reform includes:
- More frequent revaluations, three-yearly, at least, by 2022;
- Increase funding for VOA in order to deal with existing appeals’ backlog;
- Release VOA from pressure exerted by local councils and HM Treasury;
- Introduce a register of appeals professionals – removing the ‘cowboy’ element;
- Root and branch reform of current business rates exemptions and reliefs.