Loophole in the business rates system costs West Norfolk £1.635m
The response to T&A's FOI request reveals the holiday let tax loophole is proving costly.
Property owners that rent their homes as holiday lets for 140 days of the year can elect to pay business rates rather than council tax. However, they can claim for relief of up to 100% depending on the rateable value.
This part of Norfolk is regarded as a prime tourist area so T&A sent the Borough Council a Freedom of Information request asking how many properties in the Borough fell into this category and the amount of money the Borough Council would otherwise have been able to collect if this legal tax loophole didn’t apply.
The Borough Council of King’s Lynn and West Norfolk responded with the following details: “We have 1,093 properties in the business rates list under the description ‘Self- Catering Holiday Unit(s)’ Of these 758 are entitled to receive Small Business Rate Relief as they are only occupying one property. The total cost of Small Business Rate Relief for these properties is £1.635 million.”
The Borough added: “Please note this is not income the council would have collected for itself. This income is paid to different bodies, including the borough council, under the Business Rate Retention Scheme.
“We also receive government grant for an element of Small Business Rate Relief to compensate us for the cost. Unfortunately it is not possible to calculate this amount just for these properties.
“We cannot calculate how much the council tax charge would be if the properties were in the council tax list (which they would be if they were available for let for fewer than 140 days) as we do not know which council tax band they would fall into.”
Although the Borough couldn’t give T&A an estimate on lost council tax revenue for the 758 properties, the Borough’s website says “The most common Council Tax band in Kings Lynn and West Norfolk is A, and the median Council Tax band is B. The average (mean) Council Tax value in Kings Lynn and West Norfolk is £1,307.09.”
Using the Borough council’s own average figure this amounts to a £990,774.22 loss of revenue. But perhaps this figure is a conservative estimate. Checking one postcode area in the popular coastal village of Thornham (PE36 6LZ) revealed that there were two Band A properties, one B and one C property, four Band D and six Band E, five Band F and one Band G. With the average Band E rate of £1853 and Band F of £2190 the loss of revenue for public services could be much higher.
Let us be clear, owners are doing nothing illegal, in fact it is efficient tax planning, but as John Webber from Colliers property consultancy says, “we do blame the Government for over-seeing this mess which inevitably leads to friction in many coastal resorts.”*
In March 2021 the rules were tightened to make sure that only holiday lets that actually let for a minimum of 140 days could take advantage of the scheme (previously owners only had to show that the property was available for let) however, it remains the case that as well as the loss of council tax income the parishes are deprived of precept income to support village activities leaving the permanent residents to carry the burden.