Owners of second homes who benefit from lucrative tax breaks by falsely claiming they are holiday lets face a clampdown from the taxman, the Treasury said yesterday.
At present owners can declare they are renting out second properties – meaning they are charged business rates rather than council tax, which is higher.
A total of 60,000 properties are registered in this way. But the Treasury is concerned that many owners are getting away with paying business rates while making little or no effort to rent their properties.
Owners of second homes who benefit from lucrative tax breaks by falsely claiming they are holiday lets face a clampdown from the taxman. Picture: Stock
Now HMRC tax chiefs will tighten the rules to force holiday landlords to prove they have let properties out for at least 140 days per year.
HMRC said 96 per cent of those who have registered their property to avoid paying council tax – 57,000 – have declared a rateable value of £12,000 or less.
That means they are also exempt from business rates under a Covid scheme designed to help small firms. In effect, they are getting their rubbish collected and other council services for free.
Officials also believe some owners may have claimed coronavirus support grants of up to £9,000 each to replace lost income which they suspect they would never have achieved because they had no intention of letting properties out.
A Treasury source said: ‘At the moment, the criteria says that all you need to do is say that a property will be rented out for 140 days per year – but someone can say that and not actually be letting the property out.
‘Clearly, some will also have claimed coronavirus support, but we don’t know how many. We are going to force people to account for the claims they make.’
Chris Etherington, a partner at tax experts RSM, said: ‘It seems some taxpayers have been taking advantage of the Government’s generosity to date. The announcements made today help to ensure that relief from council tax and business rates are targeted at the appropriate recipients – namely those with furnished holiday lets who are genuinely trying to be entrepreneurial and run a business.
‘It’s a sensible step to try to stop a small minority claiming relief when they shouldn’t and welcome news for local authorities who will have a boost to their revenues.’
HMRC tax chiefs will tighten the rules to force holiday landlords to prove they have let properties out for at least 140 days per year. Picture: Stock
Paul Turner-Mitchell, of property tax advisers Altus Group, said: ‘If you’ve got a second home in Cornwall, really you should be paying council tax on it. Councils like Cornwall and Devon were getting really hacked off.’
John Hart, leader of Devon County Council, said: “I welcome the Government’s move to close this loophole. It’s never made sense and the pandemic has shone a spotlight on how second home owners have been able to benefit from the anomaly. I hope the Government will now move swiftly to shut this down.”
Meanwhile, the Treasury is stepping up efforts to close the UK’s £31billion tax gap – the difference between taxes owed and what is collected.
Chancellor Rishi Sunak has made closing the gap one of his top priorities. He plans to do so by digitalising the tax system. The Treasury has pledged to ‘end the era of the tax return’ by investing £95million into a fully digital system.
It could mean millions of people and small companies having to pay income and corporate tax bills earlier than normal.
Jon Richardson, of accountancy firm PwC, said: ‘It would cut out the tax agent and the mistakes made on tax returns. This will reduce the tax gap and make tax collection more efficient.’ But others are worried it could be a backdoor way for the Government to collect extra data on the population – which the Treasury denies.
Yesterday was the Treasury’s ‘tax day’ when officials released a series of consultations about possible changes.