Controversy follows hot on the heels of every annual budget. Chancellor Rishi Sunak’s second effort in 2021 is no different. No chancellor has ever been able to please everyone, although many have tried.
However, one of the strands that needs further unravelling is a proposal that may have profound ramifications in a growing sector of the private rental market. Her Majesty’s Revenue and Customs (HMRC) has a history of targeting potentially rich new sources of tax income, and it seems that the owners of second homes are now in its sights. The emergency grants and tax reliefs introduced during the covid pandemic have increased the urgency of this project.
This does not need to affect the soundness of holiday lets as an investment, but getting the foundations right is important, which means investigating property availability, organising funds, doing your research and soliciting conveyancing quotes from a wide pool of specialists such as those at https://www.samconveyancing.co.uk/conveyancing-quote. You must also ensure you comply with the specific rules that govern holiday lets.
Current qualifying conditions
Tax rules governing the letting of second homes have long recognised what many see as the reality of this form of property ownership. To qualify, you have to be able to demonstrate that the property is a genuine holiday let, which is done by making the property available for 30 weeks of the year and actively promoting it. The property must be actually let for 15 weeks, and if it’s furnished, no single letting can be longer than 31 days. The chief benefit of this is that second homes classed as holiday lets are exempt from council tax and instead qualify for business rates, which is almost always lower.
However, HMRC’s own figures suggest that of the 60,000 registered UK holiday lets, 57,000 have a declared rateable value of £12,000 or less, thus exempting them from business rates. It also means that they are receiving basic council-funded services, like refuse collection, free of charge, even while council budgets are under huge pressure.
New Treasury measures
What has never been clear is how the qualifying conditions are monitored or verified. The government is now planning to impose an obligation to prove not only that such properties are being let for the period specified, but that the property owner is taking all reasonable steps to attract lettings.
The new provisions are simultaneously aimed at another abuse. Coronavirus support grants of £10,000 were introduced in 2020 to compensate for lost rental income, and HMRC suspects that many property owners claimed this support even though they had no intention of letting.
While this may well crack down on anyone who is gaming the system, it will inevitably catch owners who operate holiday lets in good faith and embroil them in extra bureaucracy and paperwork. The generosity the Treasury has shown to this sector for the past four or five years looks about to be curtailed, but the genuine holiday-let owner should not be alarmed.