Consultation launched as ministers review second-homes tax loophole
The Government has launched a consultation as part of a review of tax rules for second homes after campaigning by Cornwall councillors and MPs.
There have been calls for changes to close a loophole which has seen some second home owners avoid paying either council tax or business rates on their second homes.
Second home owners have to pay council tax unless they declare their homes as being let for holiday use and register them as businesses.
They then have to be registered for business rates, but most qualify for small busi- ness rate relief for having a rateable value of £12,000 or less. By doing this, second home owners avoid paying any tax at all.
It has been reported that up to 6,000 properties in Cornwall are using this loophole, which means that Cornwall Council is missing out on up to £10m in unpaid taxes.
Announcing the start of the government consultation, Local Government Minister Rishi Sunak said: “We’re aware of concerns that the current arrangements for valuing second homes for business rates and claiming relief do not provide strong enough protections against abuse.
“We are seeking views on whether we should strengthen the checks already in place to ensure second-home owners have to pay council tax, while ensuring genuine holiday let businesses are able to demonstrate they are eligible for business rates relief.”
The consultation will seek views on whether the current criteria should be strengthened to ensure second home owners are contributing to the local economy through the proper payment of council tax, or, for those genuinely renting out their property and supporting tourism, business rates.
The review has been welcomed by St Austell and Newquay MP Steve Double who has been calling for changes to be made.
He said: “It is right that everyone should pay their fair share of rates. That some holiday home owners have exploited loopholes to avoid paying their way while still benefiting from local government services is wrong, and something I have raised at all levels of Government in Parliament as well as meeting with Ministers to discuss what more can be done.
“I am pleased to see this commitment to a consultation, a first step to what I hope will result in a change for the better for council tax payers in Cornwall. I await the consultation with interest and will continue to do all I can to ensure change on this issue happens as soon as possible.”
Some parts of Cornwall have been attempting to reduce the increase in second homes by bringing in new rules.
Areas including St Ives and Mevagissey have included policies in their neighbourhood plans which state that no new build homes should be sold as second homes.
‘It is right that everyone should pay their fair share’
MP Steve Double
More than 3,500 second homes were bought in Cornwall last year – accounting for 27% of all property transactions in the county.
The figures have been revealed by Her Majesty’s Revenue and Customs (HMRC) as part of statistics released around stamp duty.
They breakdown how many properties have been bought as “additional dwellings”, which could be used as second homes or as buy-to-let properties.
It shows that in 2017/18 3,510 properties were sold as additional dwellings in Cornwall, which is 27% of all properties sold in the county.
They had a combined value of £987million, giving them an average value of just over £281,000 each.
This compares to the previous year, 2016/17, when 2,940 properties were sold as additional dwellings which was 24% of the market and valued at £781m.
The rise in second home sales has come despite the Government increasing stamp duty for properties bought as second homes by 3%.
In Cornwall, there have been measures implemented to try to prevent more homes from being sold as second homes.
Several areas, including St Ives and Mevagissey, have included policies in their neighbourhood development plans which state that any new homes built cannot be sold as second homes.
In 2013, the Government allowed a reduction of council tax discount on second homes, and Cornwall Council cutting it from 10% to 0%.
Efforts are now under way to close a loophole whereby some second home owners are avoiding paying council tax or business rates on their properties by registering them as businesses, but below the threshold for business rates to apply.
Labour Cornwall councillor Cornelius Olivier has previously claimed that more than 6,000 properties were using this loophole, which, if closed, could be worth an additional £10million of income a year for Cornwall Council.
Conservative MPs Derek Thomas, Steve Double and Scott Mann have all raised the issue in Parliament and have called on the Government to allow councils to charge double council tax on second homes.
Government ministers have indicated that they are looking at the issue, leader of the Labour party Jeremy Corbyn announced at the Labour Party Conference that he would support charging double council tax on second homes.
Second-home owners are avoiding council tax by registering them as businesses