In a strategic move to reduce costs, an increasing number of holiday let owners in England are shifting their properties into the business rates system, where the majority qualify for full tax relief. This shift comes as local councils in England prepare to impose council tax premiums on second homes from 2025.
Higher premiums are likely to be introduced in popular holiday destinations where policymakers worry that second homeowners are locking local people out of the market. Several councils in Wales have already taken up the option when laws were passed in previous years.
The latest data reveals that as of April 2024, 77,880 holiday lets were registered for business rates in England, representing a 23% increase (14,560 properties) on 2020. In stark contrast, the number of second home council tax declarations remained relatively unchanged over the same period, with a total of 263,300 homes.
This trend suggests that holiday homeowners are proactively seeking ways to minimise their tax liabilities in light of the impending council tax hikes. Consequently, most councils imposing council tax premiums on second homes may find themselves worse off due to this shift. 96% of all English holiday let properties registered for business rates fell below the £12,000 threshold, meaning only 4% could be subject to a tax bill, assuming each owner has only one property registered for business rates.
Several popular second home destinations have seen big increases in the number of homes moving into the business rate system since April 2020, with Cornwall (+32%), Northumberland (+34%) and Dorset (+27%) recording an uptick. However, this shift has coincided with a fall in council tax receipts. For instance, Cornwall experienced a 6% reduction (875 properties) in second home council tax receipts since October 2019, while 3,120 more registered for business rates.
Looking ahead, councils that voted in favour of second home council tax hikes, such as Bath and North East Somerset, East Devon, and North Norfolk, are likely to impose these premiums from April 2025. All these areas have seen a rise in the number of second homes over the last few years, further exacerbating the issue.
The current requirements to qualify for holiday let business rates in England are:
- The home will be available for short stays totalling 140 days in the coming year.
- The home was available in the same way for 140 days in the previous year.
- The home was let out for a minimum of 70 days in the previous year.
The key benefit of opting for business rates instead of council tax is the small business rates relief, which often results in no payment being due for properties with a Rateable Value below £12,000. However, where owners own multiple homes or businesses, small business rates relief is only available on one of the owner's properties.
While adding premiums to council tax without reforming the broader business rates system may not effectively curtail the number of holiday lets, it could lead to more intensive use of these properties by visitors in the future. Owners will likely strive to meet business rates criteria to avoid paying large council tax premiums, resulting in homes that were previously empty for most of the year being used more frequently.
