British Destinations

Could abuse of business rate relief by second home owners threaten relief for genuine operators?

Posted on August 15, 2018 Updated on August 15, 2018

Alleged abuse of business rate relief scheme by second home owners could cause the Government to review the relief and potentially penalise genuine self-catering and furnished holiday let businesses in the process.  In recent months there has been increasing Parliamentary interest in the practice, among some second home owners of claiming business relief on properties that are in fact used purely as second homes, or are only occasionally let, or loaned out to friends and relatives and therefore don’t meet the qualify condition of a commercial business.

In 2012 Councils were given the discretion whether or not to apply the 50% rebate to empty or second homes, some in popular holiday areas immediately took the opportunity to start charging the full rate, others have since followed.  By 2016 there was speculation that many holiday home owners were flipping their properties, registering them as businesses and claiming 100% business rate relief on properties with a rateable value of less than £6k, tapering to £0 for those valued up to £12k.  In 2016 one estimate put the cost of the practice at C £4m in Council Tax, however, it was not then thought to be wide spread as the majority of second homes were still thought to be registered for Council Tax.

In 2017 the 100% relief was doubled to all businesses with a rateable value of less than £12k graduation to £0 for those valued between £12k and £15k. In Scotland, England and Wales furnished holiday lets and self-catering properties must be made available for rent for at least 140 days, some of the other basic requirement differ in Scotland, whilst in Wales they also need to be let for at least 70 days in the tax year.

It is said that a significant number of additional properties have been registered as businesses, specifically to take advantage of the new higher valuations threshold. There is nothing wrong with this if these properties are genuinely being run as a qualifying business.  If, however, these are actually second homes, or occasionally let or loaned holiday homes that don’t in reality qualify and the owners are registering them to avoid paying both Council Tax and, by dint of the relief, business rates, it is at best questionable, if not fraudulent.  As businesses these properties, when sold, can also attract advantageous rates of capital gains tax as compared to those applicable to the sale of a second home. If they aren’t genuinely businesses then that could well be deemed to be tax evasion rather than avoidance?

On the flip side many established furnish holiday lets and self-catering businesses are said to struggling in the face of recent business rate revaluations which has seen some businesses above the rate relief thresholds paying considerably higher rates since the revaluation.  Any negative change to the relief  would exacerbate the problems for many, mainly smaller businesses.

Government may well ignore the issue, preferring instead to encourage local authorities to use their existing powers to require business owners who they suspect of avoidance to prove that they meet the requirements.  Appearing to meet the requirement is apparently quite easily done, whist proving avoidance is said to be difficult.  Alternatively, Government could review and change the thresholds and qualifying requirements which could easily penalise some of the smaller, genuine operators.

Representing the interests of destinations, I am torn between ensuring that local Council partners receive the funding they desperately need and are entitled to and the need to protect the business interests of your local partners, including the self-catering and furnish holiday let providers.   In anticipation of further movement on this issue post the summer Parliamentary recess, I am seeking any local evidence and views on issues outlined above that members are able to offer.