Second homes reclassified as businesses to save council tax
Residential properties used as a first or second home are liable to full council tax. However, owners of rented holiday homes need only pay business rates if the business's rental income is sufficiently high. If the annual rateable value is less than GBP6,000, they are entitled to a 100 per cent exemption – a special concession of double the usual 50 per cent relief, introduced on 1 October 2010 and available until 31 March 2015. The rate of this relief tapers from 100 per cent down to zero for properties with a rateable value between GBP6,000 and GBP12,000.
Some 2,373 properties have been reclassified as business premises since 2010, according to a Freedom of Information Act disclosure made to business rates expert Paul Turner-Mitchell.
So the extra small business rate relief has clearly made the 'flipping' technique more attractive to second homeowners. But the trend might also have been prompted by many local authorities' tougher attitude to second or unoccupied homes. Two years ago they were given powers to withdraw certain of the council tax discounts and exemptions they have traditionally granted – principally the second home discount and the empty or uninhabitable property exemption. Local authorities in areas with large numbers of second homes, such as Cornwall and Devon, took up the opportunity without delay, costing their owners thousands of pounds a year.
The use of flipping is now estimated to be risking GBP30 million a year in council tax for these two counties alone, which between them are thought to hold 26,000 second homes. One thousand in Cornwall have already been reclassified as business premises.
Local authorities do have remedies if they suspect a reclassification application has been submitted for tax avoidance reasons. They can demand to see proof that the property is genuinely available for letting. Properties must be available to let for at least 140 days a year in order to qualify. The reclassification process is independently verified by the Valuation Office.
The large majority of second homes still remain registered for council tax, though. So far, estimates put the amount of council tax saved by flipping at only GBP4 million nationwide.
The content displayed here is subject to our disclaimer. Read more