Second home tax loopholes under review by Labour Party

UK: The Labour Party is seeking to close tax loopholes that enable second homeowners to avoid paying council tax, according to The Telegraph.

The news echoes previous calls from Conservative and Liberal Democrat MPs to tighten the regulation of second homes and release more housing supply on the market.

According to the newspaper, one in four councils in England have already drawn up plans to use new powers to charge double the full rate of council tax for second homes.

In April, it was revealed that the Scottish Government and COSLA [The Convention of Scottish Local Authorities] were working to introduce similar legislation in Scotland, with new First Minister Humza Yousaf giving councils the power to double the full rate of council tax on empty and second homes from April 2024, pending the result of a 12-week consultation period that closed last month.

The consultation discussed potential changes to the definition of when a property offering self-catered accommodation becomes liable for non-domestic rates.

Though the government is looking into granting those powers to local authorities in England, it has been criticised for including a tax exemption for owners who rent out their homes as holiday lets for at least 70 days per financial year and make them available to rent for at least 140 days.

A Labour Party source told The Telegraph that the situation was being monitored and added that “there shouldn’t really be tax loopholes that second homeowners are able to exploit in this way”.

Shadow Levelling Up Secretary Lisa Nandy told the newspaper: “While short-term holiday lets bring many benefits, those benefits must be weighed against the impact on local people and in many places the government hasn’t got that balance right. Excessive rates of second home ownership have a direct impact on communities, and especially the availability and affordability of homes for local families and young people.”

Tobias Ellwood, the Conservative MP for Bournemouth East, said: “Paying council tax arguably is the definition of being tied to your community. You are buying into all the services, the support, the entire character of where you live and that also allows you to have a say with the ability to vote, so it’s absolutely right that if you are a beneficiary of these local services that you should also contribute to those costs.”

If the Labour Party is to come to power in a general election next year, it would likely require all holiday let owners in the UK to obtain licences in a bid to limit the number of second homes and homes being left empty for extended periods.

Meanwhile, Airbnb hosts suspected of not declaring their rental earnings are facing a potential 20-year tax investigation from His Majesty’s Revenue & Customs [ HMRC ] that covers six years of income information, as part of a wider crackdown on the sector’s activities by the UK tax authority.

Earlier this year, the platform was forced to share the income details of all of its UK hosts dating back to the 2017-2018 financial year with HMRC, which has set out to identify owners who rent out their properties as short-term lets without declaring how much they are earning each year.

HMRC is also targeting hosts and owners on a number of online rental platforms within its tax crackdown.

Under the current laws, since data sharing began in 2018, hosts renting out properties through online rental platforms are able to make £1,000 a year before tax under a ‘tax allowance’, with any profits above that amount needing to be declared to HMRC. Those renting out a single room in their property have a much higher income threshold before they have to pay tax [£7,500] as part of the government’s ‘Rent-a-Room’ scheme.

However, those who fail to pay their income duties have been warned that they could face criminal prosecution, as well as strict penalties of up to 30 per cent of the tax they owe.