Ilyas Patel Accountants in Preston
Ilyas Patel Accountants in Preston
The government’s recent attempt to increase revenue through a tax hike on second homes might lead to unintended consequences, potentially costing the Treasury £ms.
Instead of reaping the anticipated benefits, this move could encourage property owners to engage in tax avoidance strategies.
(Read Time: Approx. 4 minutes)
As local authorities across the UK gain new powers to double council tax on second homes, the government anticipates this will generate substantial revenue for councils, particularly in holiday hotspots.
With almost 150 councils planning to implement these changes, the intention is clear: to deter second home ownership and address housing shortages in popular areas.
However, what seems like a straightforward plan to increase tax revenue and make housing more accessible may not be as effective as hoped.
Experts warn that the initiative could backfire, leading to widespread tax avoidance that might cost the Treasury an estimated £172 million annually. This stark figure is drawn from the nearly 80,000 holiday let properties currently registered for business rates, many of which benefit from 100% tax relief
Faced with the prospect of paying double council tax, many second homeowners are turning to an increasingly popular loophole: “flipping” their properties.
By reclassifying their second homes as small businesses, owners can avoid paying council tax altogether.
Instead, these properties become eligible for business rates relief, which can amount to a complete exemption from tax.
This trend is particularly concerning for the government, as it not only undermines the purpose of the tax increase but also leads to a significant loss of revenue.
This could result in a shortfall of over £170 million each year, up from £150 million in 2022.
Despite efforts to tighten regulations, the problem persists, with local authorities and central government both missing out on much-needed funds.
Cornwall, a region heavily affected by second home ownership, has been at the forefront of the push to increase council tax on these properties.
Some councillors have suggested tripling the tax as a deterrent, but experts argue that this approach is fundamentally flawed.
However, drastic measures are unlikely to solve the housing crisis and may even exacerbate it by encouraging more property flipping.
The real issue, according to critics, lies not with second homeowners but with policymakers who fail to address the underlying problems in the housing market.
By focusing on punitive measures rather than comprehensive solutions, the government risks alienating homeowners without achieving the desired outcomes.
One of the most significant criticisms of the new tax measures is their potential to harm those who are not the intended targets.
Bereaved families who inherit property, for example, could find themselves facing exorbitant tax bills simply for owning an additional home.
Similarly, those trying to sell inherited properties might be caught up in the tax net, with councils showing little flexibility in granting exemptions.
Under the current rules, homeowners can avoid council tax by making their properties available as holiday lets for 140 days a year and letting them for at least 70 nights.
However, this threshold is relatively low, making it easy for second homeowners to meet the criteria and claim business rates relief.
As council tax bills continue to rise, the incentive to flip properties becomes even stronger, further diminishing the potential gains for the Treasury.
The government’s attempt to curb second home ownership through increased council tax may have the opposite effect, driving more homeowners to exploit loopholes and avoid tax.
The depth of property taxation highlight the need for a more careful approach to housing policies, one that addresses the root causes of the housing crisis without penalising those who are not to blame.
If you own multiple properties and are concerned about the implications of these tax changes, it’s essential to seek expert advice.
At Ilyas Patel Accountants, we specialise in helping property owners navigate the complexities of tax planning.
Fill out our form here for any questions, give us a call at 01772 788200, or message us on our WhatsApp for out of office hours.
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Ilyas Patel