New tax system for Airbnbs and holiday lets being finalised by government

The government says it’s finalising plans for a new tax regime to apply to additional homes, and in particular those used for holiday and short lets. 

There has been widespread criticism of some holiday home owners who have registered their additional properties as businesses, thus making them entitled to rate relief for small businesses.

Lord Greenhalgh, speaking at a House of Lords debate on second homes, has said: “The government have confirmed that we will legislate to require that holiday rentals meet an actual letting threshold before being assessed for business rates. This will ensure that only genuine holiday businesses can access the rate relief for small businesses. We will set out further details shortly in the government’s consultation response.”

Later in the debate he said: “I point out that 96 per cent of second homes pay council tax in full, even though they may use local services only on an occasional basis. We believe that, in the sharing economy, where people run businesses and meet the threshold, it is reasonable for them not to pay council tax and to be subject to the business rates regime. No local authority has lost out, because they are covered by various grants in the business rates retention scheme.”

Various Labour peers spoke of what they claimed to be the need for tougher restrictions on second homes in general, and the tax that applied to them.

Lord Kennedy of Southwark, for example, said: “Holiday lets, as we know, can be much more lucrative than tenancies, with landlords frequently able to bring in the income they would get over the course of a whole year from tenants in just the summer months. Small business rate relief also means that they can pay very little tax. Should the Government not do more in this area, perhaps with a larger levy, to encourage landlords to rent to tenants instead?”

And Lord Campbell-Savours, another Labour peer, contributed: “The proliferation of holiday lets in lakeland towns such as Ambleside, Windermere and Keswick is decimating the residential market for locals, particularly the young. The switch from council tax to a reduced business rate system will only aggravate the problem by further incentivising holiday letting. Is not the answer to this wider problem of drift to holiday letting to cap the number of holiday lets through the use of a combination of licensing and planning rules?”

Lord Greenhalgh told the House that HM Treasury was working the Valuation Office Agency to finalise the details of how and when the new tax regime would be implemented.