Inquiry launched into closing holiday home tax 'loophole'

A loophole that allows owners of holiday homes to avoid council tax and business rates could soon be closed.

A government minister has said the situation is being looked at, hinting at a possible tightening of legislation.

The development follows a question raised in the Commons by Steve Double, Tory MP for St Austell and Newquay, who said councils in tourist areas were losing out on revenue.

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Housing and local government minister Rishi Sunak acknowledged there was “scope for ambiguity” and that officials were examining the rules.

Holiday home owners can convert their properties to business use and take advantage of small business rate relief to avoid both charges.

Reclassifying a second home as a rental holiday home means owners no longer need to pay council tax.

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And, business rates only kick in once rental income goes past a certain level – based on the property type, size and location, and how many people can sleep in it.

Local Cllr Cornelius Olivier, told Cornwall Live the council was missing out on £10m in taxes under the current system.

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The Labour party in Cornwall wants to double council tax on second, holiday homes and use the estimated £25m boost to provide more affordable housing for locals.

Three towns, including the tourist hotspots of St Ives and Mevagissey, have held referendums that have backed overwhelmingly plans to restrict the sale of new-build homes to locals amid strong evidence that many are being priced out of the market by “out-of-towners” buying up properties for holiday lets.

According to the 2011 Census, more than 165,000 people in the UK have a second home for holidays.