Second homeowners tax (England)

22nd April 2022

The way that taxes are levied against second homes in England is being changed and could see second homeowner costs rise. These changes were aimed at closing tax loopholes for second homeowners and encouraging properties to be brought back into full-time residential use. Here we will discuss what these tax changes are, and what effects they will have on second homeowners.

Second homeowner tax changes

Closing the tax loopholes that for years have allowed second homeowners to claim business rates on their properties is the aim of these tax changes. Previously, second homeowners could claim business rates on their properties if they made them available to let for 140 days in the coming year. However, this did not guarantee that the property would be used as a short-term let for the entirety of that period. These long periods of a property remaining uninhabited can contribute to a slower growth in the value of the property and specifically to that area. It was also seen as a problem for local communities as it reduced the availability of residential homes. Now though, a property owner needs to prove that the property will be let for 70 days in a year before they are entitled to receive business rates on the property, which will help alleviate some of the issues locals experience with second homes.

Effects of the tax changes

With short-term lets now having to prove that they will be let for 70 days in a year, lots of owners of properties currently receiving the lower business rate will no longer be able to claim it. This could mean that second home owners could see cost increase by more than £1,000 a year. The Secretary of State for Levelling Up, Michael Gove had this to say about the changes;

The Government backs small businesses, including responsible short-term letting, which attracts tourists and brings significant investment to local communities.

However, we will not stand by and allow people in privileged positions to abuse the system by unfairly claiming tax relief and leaving local people counting the cost.

The action we are taking will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.”

Will second homeowner tax changes be effective?

While the government claims that this tax change will benefit local communities, these views are not universally held. CPRE, the countryside charity, claims that these changes will have little effect on bringing second homes back into full time residential use. Crispin Truman, chief executive of CPRE, the 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”.

CPRE points out that there are currently 176,000 rural families currently on the social housing waiting list while there are 148,000 rural properties currently being used as AirBnB style lets in September 2021. Truman went on to call for

Tighter controls on second home ownership, including higher council tax on second homes and the requirement for short-term lets to have planning permission.”

Overall, the Government will close tax loopholes that allow second home owners to receive business rates on their properties. The change forces second home owners to prove that the property will be let for at least 70 days a year before receiving lower business rates of tax. 

If you are a second home owner and are looking to learn more about converting your property into a long-term residential let and maximising its rental potential, our property management team will be able to help, please feel free to contact us.

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