The UK government is reviewing regulations that enable second homeowners to avoid council tax by reclassifying properties as holiday lets, a move that could impact thousands of property owners across the country.
Under current rules, property owners can qualify for small business rates relief by letting a property for at least 70 nights annually and making it available for 140 days. This arrangement often results in owners paying neither council tax nor business rates if they operate only one property.
Powers under review
Housing Minister Matthew Pennycook confirmed that “additional powers” for councils regarding short-term lets and second-home taxation are under review. Speaking in the Commons, he stated: “The Government appreciates that the excessive concentration of short-term lets can impact on the availability and affordability of homes, both to rent and to buy.”
The review comes as regulatory changes continue to reshape the rental sector, with ministers pledging in a November consultation to “ensure that any reliefs are appropriately targeted” amid concerns the system is being exploited to manage tax liabilities.
Political pressure
Andrew George, Liberal Democrat MP for St Ives, described the arrangement as a “massive, gaping tax loophole”, adding: “You would have thought Labour would see the public resource in doing that. In my mind, it’s an obvious thing to do, and it’s a failing of the Government.”
The criticism reflects broader concerns about housing availability in areas with high concentrations of second homes and short-term lets. The issue has particular significance for landlords and property investors who have structured their portfolios around the current relief system.
Market implications
Any changes to the tax treatment of holiday lets could affect property investment strategies in popular tourist destinations, where second homes comprise a significant portion of housing stock. Ministers are expected to publish their response to the consultation later this year, providing clarity on the future regulatory framework.
The review forms part of the government’s broader examination of how local authorities can respond to housing pressures created by concentrations of short-term rental properties.
