Second home owners face higher bills that could run to more than £1,000 a year under fresh government plans announced this morning to close a tax loophole but that is not enough to deter people from investing in the short let’s sector, according to a countryside charity.
Michael Gove, the Levelling up Secretary, has announced new rules that will mean From April 2023 second home owners can only register for business rates if they can prove they let the properties for at least 70 days in a year.
Currently, they are permitted to pay business rates, which are cheaper than council tax, if they make their property available for letting for 140 days in a coming year.
Housing Secretary Michael Gove commented: “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.”
However, the CPRE, the countryside charity, is calling for more to be done to deter people from investing in the short-let sector.
Crispin Truman, chief executive of CPRE, the countryside charity, said: “While we support plans to stop people abusing a holiday home tax loophole, these proposals don’t go far enough. There is a rapidly growing housing crisis across rural England and the government needs to get a grip of it, fast. Ministers must do much more to meet the affordable housing needs of rural communities.
“We’ve lost 150,000 private rented homes, with the boom in Airbnb-style lets clearly contributing to that loss. The dip in available rentals is having a devastating impact on our already struggling rural communities. We’re seeing families stranded on social housing waiting lists while perfectly good properties sit empty much of the year. Their fury is entirely understandable.”
The CPRE claims that the explosion in holiday lets is strangling rural communities.
It points out that 148,000 homes that could otherwise house local families were available on Airbnb style lets in September 2021. This compares to 176,000 rural families on social housing waiting lists.
The CPRE, the countryside charity, is calling for tighter controls on second home ownership, including higher council tax on second homes and the requirement for short term lets to have planning permission. Additionally, the definition of ‘affordable’ must be changed in national planning policy, with rents being tied to local incomes rather than market prices. To level up our rural communities, changes to planning law and policy should be committed to in the government’s forthcoming Planning Bill, requiring at least one new genuinely affordable home for every market home built.
In many areas social housing waiting lists could be drastically reduced or even eliminated if the number of properties advertised for short term let were available for local families instead, claims CPRE.
Analysis by the countryside charity shows that in Cornwall, which saw short-term listings grow 661% in the five years to September 2021, there are roughly 15,000 families on social housing waiting lists and the same number of properties being marketed as holiday lets.
In South Lakeland, which saw a 1,231% increase in short term listings between 2016-20, roughly half the families in need of social housing could be accommodated in properties exclusively available for holiday rentals;
In Cumbria, a 4% decline in the number of privately rented properties coincided with a 14% increase in families on social housing waiting lists since 2016; and
In Devon, short term lets appear to be worsening an existing housing crisis, with nearly 4,000 homes taken out of private rent and 11,000 added to short term listings since 2016.
Truman continued: “Across our most traditional rural communities, from the beaches of Cornwall to the lakes of Cumbria, hard working people are suffering. They will not easily forgive a government that promised to level them up if it leaves them falling through the cracks of a broken system.
“It’s clear the government needs to act fast to avert a growing housing crisis. With the cost of living set to hammer people’s finances in the coming year, this is a problem that’s quickly getting out of hand. There simply has to be a government response to the fact that our rural housing supply is disappearing into an unregulated short-term rentals market that didn’t even exist six years ago.
“Ministers must introduce tighter controls on second home ownership, including higher council tax on second homes and the requirement for short-term lets to have planning permission.”
Many second home owners have registered their holiday homes as businesses to avoid paying Council Tax. Typically the low rateable value of these homes enables owners to claim 100% SBRR, small business rate relief, which means they pay nothing towards the provision of local services, with the exception of some Councils who bill a small amount for waste disposal. Many of these owners have also qualified for tens of thousands of pounds in government Covid grants. In addition, if the property owners have a mortgage, they can offset the interest in full against rental income, making holiday homes a much more attractive proposition than ‘buy to let’. Also, the full cost of improvements and maintenance to the property can be claimed as an expense. Some holiday home owners do run their properties as a legitimate business, but many see this as a way of subsidising their private use of the property, in effect tax avoidance. The requirement for a property to be let for 70 days for holiday use is not a difficult barrier to cross. The rules should be tightened to prevent property owners registering their properties as business premises in cases where they, or their families, personally occupy their properties at any time during the tax year. Alternatively, property owners should be obliged to declare on their self assessment tax returns, the number of weeks the property is dedicated for family use, and pay tax as a benefit in kind. If you look at holiday cottage booking sites in popular locations you will typically find that many of the properties are never available during peak times, bank holidays and summer months, because the owners are in residence. They may well rent out for the less popular months but keep the best weeks for themelves, whilst claiming all the expenses. A change in the tax laws to tackle the current abuse and unfairness would impact on the value of these holiday homes and potentially increase availability to local, full time residents.
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You can introduce as many rules as you want to to, but how are they going to be policed? To me the simpliest way of sorting this is back peddling on Section 24 so that BTL landlords can once again claim tax relief on their mortgage interest payments and level the playing field so that PRS landlords are made to feel more valued, rather than the greedy pariahs they are currently made out to be. Our little agency is losing a steady stream of landlords who have decided enough is enough and are either selling up or converting their properties to holiday/short term lets (we’re seeing waaaay more sell up though). The situation for anyone who needs to rent is dire – so many people looking and so few properties available. The Government, under the toxic influence of the likes of Shelter and Generation rent are in the process of creating the biggest rental homing crisis ever seen, and rather than wake up and realise their draconian legislation is causing it, they are punishing PRS landlords even harder. The whole situation is crazy.
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I couldn’t agree more. With the vast majority of landlords being over 50 years of age, we are seeing lots now selling up. This is going to continue to increase over the coming years with the younger generation not filling the gaps. We have hotels near us that have been housing families for months on end because there is no housing available.
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We have a traditional holiday let property, essentially its an uninsulated shed near the beach in Croyde. Its been in the family for a couple of generations. A few hardy surfers will rent it in October but despite it being available from Easter to October there is so much holiday let accommodation in Croyde it’s sometimes difficult to get 6 weeks let in the summer holiday. Out of school holidays supply outstrips demand so the proposed changes to legislation will make that micro business even less viable than it is. For sure it’s possible to fill the weeks but with renters you wouldn’t rent to.
This legislation is once again a broad brush approach that won’t solve the problem its trying to resolve. Its obviously focused on places like Fowey, St Ives & Newquay and solving specific issue places like that endure. a better solution is to have require change of use planning on any residential accommodation used for Holiday Let or Short Let B&B,
Residential accommodation used in way to deny someone a permanent somewhere to live at all ought to be taxed differently to properties that cannot be lived in as a home
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