The Government is looking to clampdown on people who claim ‘holiday let’ tax breaks on their second home.

People with second homes will soon no longer be able to claim tax breaks on the properties by stating they are holiday lets.

Under current rules, owners who declare they rent out second properties as holiday lets are charged business rates on the homes, rather than council tax.

Many of the properties qualify for Small Business Rate Relief, meaning if the property has a rateable value of £12,000 or less, they do not have to pay any tax at all, representing a significant saving compared with the council tax bill they would have faced.

But the Treasury is concerned that many people may be stating they let out their second home in order to claim the tax break, while making little effort to actually do so.

As a result, it plans to tighten the rules, forcing people who claim to be operating a holiday let to prove the property is actually let out for at least 140 days each year.

The move was included in the Government’s Tax policies and consultations publication.

Who does it affect?

Government figures show there are 60,000 self-catering premises in England that are registered for business rates, 96% of which have a rateable value that means they are likely to qualify for Small Business Rates relief. It is not clear how many of these are second homes and how many are genuine holiday lets.

Second-home owners who have been claiming business rates will now face the choice of either opting to pay council tax on their property instead, or ensuring it is let out for at least 140 days a year to continue benefiting from the tax break.

What other property-related taxes were in the publication?

While the change to the tax treatment of holiday lets was the most eye-catching change in the tax policy document, there were a number of other changes relating to property.

A new residential property developer tax

The Government announced plans to launch a consultation on introducing a new tax on the largest residential property developers in 2022.

The money raised will be used to cover the cost of replacing unsafe cladding for leaseholders in residential buildings that are more than 18 metres (the equivalent of six storeys) high.

Further details on how developers will be taxed have not yet been released, but the Government has previously said it plans to raise £2 billion over the coming decade through the levy.

Simplified inheritance tax reporting

Plans to simplify inheritance tax reporting requirements were also announced by the Government, which is good news for property owners, as their family home is most people’s most valuable asset.

Under the move, more than 90% of estates that are not liable for the tax will no longer have to complete inheritance tax forms when probate is required from January next year.

It is estimated the change will reduce red tape for more than 200,000 estates every year.

Land and property VAT simplification

The Government is looking for ways to make rules on land and property VAT exemptions clearer.
Transactions involving certain types of land and property, such as the sale of a freehold, are liable for VAT.
Certain transactions are exempt, for example if a landowner converts a commercial building into a residential one. But the current rules are complex.
The Government plans to publish a call for evidence on the issue of simplifying exemptions shortly.

Financial Secretary to the Treasury Jesse Norman said: “We are making these announcements in order to increase the transparency, discipline and accessibility of tax policymaking.

“These measures will help us to upgrade and digitise the UK tax system, tackle tax avoidance and fraud, among other things.

“By grouping them together, we want to give Members of Parliament, tax professionals and other stakeholders a better opportunity to scrutinise them.”