Insight

Local authorities want loophole costing millions to be closed

Several English local authorities are banding together to lobby the Government to close a loophole they claim is costing millions in lost revenue each year.

Scarborough Council is leading the charge and has been in discussions with other councils about a flaw in the tax system that allows people to register second homes as businesses in order to claim Small Business Rate Relief, or SBRR, and avoid council tax completely.

Under current legislation, second homeowners can let out their properties and have it assessed under the business rates’ rules. If their property has a Rateable Value of less than £12,000 a year they don’t pay any business rates at all and, if between £12,000 and £15,000, they can apply for SBRR, receiving relief on a sliding scale of between 0-100%. As the property would be classed as business premises domestic Council Tax doesn’t apply.

Scarborough is looking to work with South Hams, North Norfolk, the Isles of Scilly, South Lakeland, Dorset, and Cornwall councils to jointly lobby the Government for a change in the legislation so that self-catering accommodation is taxed solely through the Council Tax system.

The Government would keep the lion’s share of any additional Council Tax revenue but more than 10 per cent would still end up in council coffers. Scarborough, for example, would be able to keep around £300,000 from an estimate of £2.56m a year that is currently being avoided.

It wasn’t so long ago I was reporting on a similar outcry in Scotland where research claimed Edinburgh was missing out on millions in lost revenue as Airbnb owners used a similar loophole to avoid paying Council Tax and Business Rates in the city. I imagine this is a picture that is being repeated in every city across the UK where there is demand for short-term and holiday lets.

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