Tax Day: UK to clamp down on second home owners

Lucy Harley-McKeown
·3-min read
The coastal town of fowey in Cornwall – a popular location for second homes. Photo: Kevin Britland/Education Images/Universal Images Group via Getty
The coastal town of fowey in Cornwall – a popular location for second homes. Photo: Kevin Britland/Education Images/Universal Images Group via Getty

The government has announced it will legislate to tighten tax rules for second property owners meaning they can only register for business rates if their properties are genuine holiday lets.

In England, many holiday lets are liable to pay business rates, rather than council tax, when an owner declares that they intend to let their property in the next year. They may also be able to claim rates relief of up to 100%.

The government says that the change announced today will ensure that owners of properties that are not genuine businesses are not able to reduce their tax liability by declaring that a property is available for let but make little or no realistic effort to actually let it out.

Of the over 60,000 holiday lets currently on the business rates list, around 96% have a rateable value which would likely qualify them for Small Business Rates Relief and as a result pay no business rates at all.

The new criteria will ensure that owners of properties that are not genuine businesses are not able to reduce their tax liability by declaring that a property is available for let but make little or no realistic effort to actually let it out.

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Further details of the change and implementation will be included in a MHCLG response to the consultation on the business rates treatment of self-catering accommodation which will be published shortly, the Treasury said in a release.

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Tuesday's update also revealed a move to cut inheritance tax red tape for more than 200,000 estates every year, dramatically reducing the amount of paperwork many families fill out.

Over 90% of non-taxpaying estates each year will no longer have to complete inheritance tax forms when probate or confirmation is required from 1 January 2022.

The measures are being brought in as part of the Treasury's "Tax Day." The Treasury has chosen to eke out its announcements on crucial fiscal policy in the wake of COVID-19 in order to allow for greater scrutiny alongside a huge roster of other measures currently on the table to balance Britain's books. More than 30 tax updates and consultations were released this afternoon.

While the move to separate out tax policy from the main budget has earned some applause, analysts on Tuesday came away with less of a big bang than hoped. Many termed it a "damp squib."

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Tom Selby, senior analyst at AJ Bell, said: “Today’s much anticipated barrage of publications from HMRC ended up being the dampest of squibs.

“While reforms to modernise the way tax is administered in the UK, reduce the IHT burden on non-taxpaying estates and deal with tax avoidance are all laudable, this feels like a missed opportunity to tackle some fairly obvious flaws in the system."

Tim Bennett, head of education at Killik & Co, said: “No news is good news. Savers and investors can breathe a sigh of relief that the latest Tax Day document is something of a damp squib.

"None of the major changes that drew most of the recent media speculation have been referenced, whether the abolition of higher and additional rate tax relief on pension contribution, or the closer alignment of capital gains tax rates with income tax. In summary, perhaps the only surprise is that there were no unpleasant surprises.”

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