South Hams District Council has won a long and arduous campaign urging the Government to close a tax loophole which allows second home owners to avoid paying any business rates or council tax on their properties. Today, January 14 2022, the Government announced changes that close this loophole whilst protecting genuine holiday lets and benefitting popular holiday destinations such as the South Hams.

Currently, people who own second homes in England can avoid paying council tax and access small business rates relief by declaring an intention to let the property out to holidaymakers. The change, which will come into effect from April 2023, will see second homeowners forced to pay council tax if they cannot show they are genuinely renting out their properties on a commercial basis.

In 2020, the Leader of the Council, Cllr Judy Pearce, gave evidence to the Treasury Select Committee on this issue. Totnes MP, Anthony Mangnall, strongly supported the Council’s campaign and raised the issue direct with the Government.

The announcement today from the Secretary of State for Levelling Up, Rt Hon Michael Gove, comes on the back of South Hams District Council declaring a housing crisis in September 2021. This was backed by a 12 point action plan, with closing the business rates loophole being one of those areas to address. As well as ensuring that second home owners pay fairly for services, they hope that the new change may also see more short-term holiday let properties switch to long-term rental. This would help to ease the chronic shortage of long-term rental accommodation at an affordable rate, making it easier for local families to remain in the communities they love.

Cllr Judy Pearce, Leader of South Hams District Council said: “This is excellent news as a result of a sustained campaign by South Hams District Council, Anthony Mangnall MP, and myself to get this loophole in the business rates system closed.  This is important for community cohesion. 

“Second home owners should be paying into the local community unless they are genuinely running a letting business.  Services such as highways, the fire service and the police, which can equally well be used or needed by holiday makers, will benefit, as will the general income of the District and County Councils.  We welcome all visitors, but hard-pressed local residents should not have to subsidise services for them.”

Under the new rules, holiday lets must be rented out for a minimum of 70 days a year to qualify for business rates. Holiday let owners will have to provide evidence such as the website or brochure used to advertise the property, letting details and receipts. Properties will also have to be available to be rented out for 140 days a year to qualify for this relief.

The Council currently has just under 1,800 business rated properties that are self-catering holiday lets.

At a time when there are severe funding problems with all tiers of Local Government (particularly adult social care) and the emergency services are under increasing pressures, South Hams District Council spearheaded a campaign to make the point that the current system is fundamentally unfair. Small business rate relief was implemented to support small business, village halls and local shops. The rules have been taken advantage of, to allow people to not pay for the local services they are using.

Anthony Mangnall MP added: “After two years of campaigning with Cllr Judy Pearce, Leader of South Hams District Council, it is welcome news that the Government has taken this step. South Devon has one of the highest concentration of second homes in the country. This announced change will help to stop people utilising an unforeseen loophole while also ensuring that they pay their fair share. Both the Chancellor and Michael Gove have listened carefully to our needs and I hope this will be the first step of many to help improve accommodation issues in the South West and beyond.”

Responding to the announcement of a tax crackdown on second homes, Crispin Truman, chief executive of CPRE, the national 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.”