How holiday homeowners are avoiding paying double council tax

Owners of such properties can register them as small businesses and pay business rates rather than council tax if they let them for a minimum of 70 days a year having made them available for 140 days. Many are eligible for business rates relief, which means they will pay neither council tax nor business rates.

The revelation comes as the government announced new rules this week to curb short-term holiday lets.

Meanwhile Leeds Building Society declared today that it is to begin a 12-month trial with North Norfolk district council and North Yorkshire council, two of the top-four locations for holiday lets in the country, to ban new loans for holiday let homes in those areas (existing mortgages won’t be affected). In 2022 the building society became the first national mortgage lender to stop funding purchases of second residential homes.

Wendy Fredericks, the councillor in charge of housing for North Norfolk district council, says: “In North Norfolk we have a really severe shortage of homes that people on local wages can afford. Increasing numbers of holiday lets reduce the number of rental homes available for year-round use by local people.”

The government already has plans for councils in England to charge double council tax on holiday homes from April 2025, with many local authorities in holiday hotspots announcing their intention to hike prices. Some fear, though, that the long lead-up to implementation has given owners the chance to evade this by switching to pay business rates.

This week Michael Gove, the housing secretary, went a step further by adding that he wants homeowners planning to rent out their properties through Airbnb and other short-term rental websites to apply for planning permission and sign up to a government registration scheme.

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“Short-term lets play an important role in the UK’s thriving tourism sector, but in some areas too many local families and young people feel they are being shut out of the housing market and denied the opportunity to rent or buy in their own community,” a government source said of the measures.

The new rules reportedly do not apply to existing holiday lets, which the government said “will automatically be reclassified into the new use class and will not require a planning application”.

Laws in Scotland already require short-term lets to be licensed and from April local authorities there will be able to charge double council tax for second homes, including those used as holiday lets. In Wales local authorities can charge up to 300 per cent more council tax on second homes and holiday lets.

“Many people know about the council tax benefits, but there are also reliefs for capital gains tax, mortgage interest and pension contributions that can make running a holiday let more appealing from a tax point of view,” says Sean McCann, a chartered financial planner at the insurer NFU Mutual.

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Many of these tax benefits are accessible to owners who make their UK properties available to let for at least 210 days a year and actually let them out for a minimum of 105 days.

“You can’t count days where it is occupied by the owner or their friends and relatives for no or a reduced rent,” McCann explains. “Similarly, you can’t include periods where it is rented out to the same person for more than 31 days.”

Owners of holiday let properties are also eligible to offset their mortgage interest against tax in full — unlike buy-to-let landlords, who can only claim 20 per cent tax relief.

They also qualify for rollover relief on capital gains tax, meaning that if the owner sells the property and makes a gain they can roll it over into the purchase of a new holiday let property.

Cromer: Norfolk has also seen a large increase in holiday lets

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Furthermore, profits are treated as earned income, so can be used to make pension contributions, which also attract tax relief.

However, lenders are increasingly reluctant to grant mortgages to owners of properties used as holiday lets. Aside from Leeds Building Society, Barclays has said it will not grant mortgages on properties used as holiday lets.

While the idea of a registration scheme for holiday lets has been well received, some have criticised planning requirements that could discourage owners from letting their properties altogether, resulting in leaving them empty or selling them off.

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“We understand what the government is trying to achieve, identifying what properties are available and having a better control over the quality of those properties, of course we welcome that,” says Tanya Hasking, head of lettings at the estate agency John D Wood & Co. “But some of these proposals could spook landlords out of the market, ultimately damaging the very local communities the government is trying to protect.”

Ben Edgar-Spier, head of regulation and policy at the holiday let company Sykes Holiday Cottages, adds that there are 1.5 million empty properties in England, almost twice as many as second homes and short-term let properties combined.

“A report we commissioned from Oxford Economics shows that in 2021 short-term let linked activity contributed £27.7 billion to the UK economy, supporting 496,000 jobs, many in rural communities,” Edgar-Spier says. “The report also showed short-term lets have a negligible impact on house prices. And yet the sector is continually scapegoated for housing supply shortages.”