New Tax Rules for Second Homes

Having a second home in a popular UK holiday location can be a great asset. Quite often though, these properties sit empty as the property is not the main home of the owner and is only used a few weeks a year. Despite being unoccupied for the majority of the time, the homeowner is still liable for council tax on the property unless they declare an intention to let the property as a holiday let. If they do, under the current tax rules, they can access small business rates relief and also avoid paying council tax. However, the rules around this are set to change. In this article we will look at the current rules and the proposed changes.

A country lane lined by typical white houses in Cumbria, Northern England.

Current tax rules for holiday let properties

If you have registered your property with the tax authorities as a holiday let which is available for let for a minimum of 140 days per year then there is no council tax due and the tax liability comes from business rates rather than council tax. Many holiday lets, however, have rateable values less than the small business rate relief value of £15,000 and as such can claim small business rate relief and if the value is less than £12,000 there is no tax to pay at all. The Government estimated that, of the 65,000 registered holiday lets around 97% had rateable values below £12,000. Rateable values are calculated by the Government once the property is registered and are based on things such as size of property, how many people can be accommodated and its location.

What is the problem?

The problem, as the Government sees it is that that some people who have second homes, simply declare their intention to let the property out as a holiday let, but never actually rent their properties out. As such they can legally avoid paying council tax and also most likely won’t have to pay business rates either. This means that, in popular tourist areas, there is potentially a significant portion of properties which are not being productively used for tourism and whose owners are not paying to support the local infra-structure.

Future changes

From April 2023 the rules will change and are set to be tightened up significantly. To qualify for business rates rather than council tax, a second homeowner will have to:

  1. Prove that their property was actually let out for short periods totalling at least 70 days in the year previous to the claim
  2. Prove that the property is actually available to let for short periods for at least 140 days per year both in the coming year and the year previous to the claim
  3. Provide evidence of the business such as a website or brochures and also letting details and receipts

When announcing the changes, the Secretary of State for Levelling Up Rt Hon Michael 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.” These changes significantly change the taxation landscape for second homeowners and aim to close a loophole which legally allows them to avoid council tax on their holiday homes. Second homeowners should ensure that they take professional tax advice to make sure that they are prepared for these new rules.