A recent study by Consultants Colliers International has caused outrage amongst small business owners and local residents alike.
The government scheme to give small business owners a break has left open a loophole which is costing councils millions of pounds a year. Those that own a second property which is available to rent for 140 days or more are eligible for tax breaks as a small business, in addition to being exempt from paying council tax.
If the property has a ratable value* of £12,000 or less, then under the government scheme they are exempt from paying 100% of the business rates. For those with a value between £12,000 and £15,000 the tax relief is applied on a variable scale.
Collier’s focused their study on 7,300 properties in Cornwall, they found that of these properties 7,150 were exempt from paying rates under the scheme. This amounts to $13.2m a year being subsidized by the council in just one county. The 2017 business rates revaluation led to small businesses, such as specialist high street retailers and other businesses which contribute to the economy, being subject to higher taxes and financial pressure. Despite the reform being conducted this year, second home owners operating as a business have escaped the harsher taxes and the oversight in the scheme has been left unaffected.
Cornwall has the highest number of holiday rental properties in the UK, and the social impact has led St Ives to recently instigate limits on the number of new homes being sold to second home buyers – several other Cornish towns are now attempting to implement the same controls. These limitations are to try and maintain the benefits of holiday makers coming to the area and sustaining the positive impact on the local economy, whilst preventing the economic strain placed on the infrastructure with a lower rate of council tax income.
Collier’s study only analyzed the data for Cornwall, but other counties will be feeling the same pressure from the loophole and the residents will be feeling the effects of the deficit created by the tax relief scheme. It is only a matter of time before data is released for all counties and the economic shortfalls come under scrutiny for every county council.
The head of rating at Colliers, John Webber, said: “ It’s a scandal that those who have holiday homes and rent them out are able to take advantage of the small businesses rates relief and so pay less tax, putting the burden of the rates bill on to other businesses who are struggling to pay their bills.” “We do not criticize second home owners who take advantage of this tax break- that could be considered sensible tax planning. But we do criticize that the government has allowed this situation to happen and has ignored the rating industry’s calls for root-and-branch reform of the business rates system.”
Whilst no-one will blame the second home owners for taking advantage of the scheme set out by the government, independent businesses and local councils are taking the brunt of trying to fill this deficit. The business rates scheme should be reviewed to ensure that fair taxes are applied across all sectors, and that residents of popular staycation destinations do not continue to suffer underfunded county councils.
*A ratable value is a value ascribed to a domestic or commercial building based on it’s size, location and other factors, used to determine the rates payable by it’s owner