Second home owners ‘flip’ properties to become ‘commercial’ premises to avoid rates

Holiday homes are designated commercial premises to take advantage of relaxed rules on business rates

Owners of second home have saved millions of pounds by taking advantage of the Government’s decision to relax rules on business rates.

Thousands of homes have been “flipped” to become “commercial” premises, meaning they no longer have to pay council tax on their properties.

The owners have reclassified them as holiday homes, meaning they need only pay business rates if the rental income is high enough. Businesses with rental values below £6,000 a year can avoid paying any tax whatsoever.

Analysis of the data shows 2,373 homes were flipped in the past five years – having previously been domestic homes.

An example is The Old Guildhall in Beccles, Suffolk, which was sold in July 2013 for £650,000. In November 2013, it was “flipped” and assessed as having an annual rental value of just £6,000, paying no rates at all as a result. Yet the property website Zoopla projects that the value of this house has soared by a staggering £52,000 in the last year alone, and estimates that this house could potentially rent for more than £3,000 per month.

A further 441 homes have also been “flipped”, now paying less in business rates than the average council tax bill of £1,468 by receiving tapered rate relief.

Paul Turner-Mitchell, a business rates expert who un- earthed the details, said: “With the average household struggling to meet their council tax demand despite a series of freezes, most people will view this as a tax avoidance scheme for the rich lucky enough to own a second home.”

He added: “The abuse of reliefs is epidemic, mandatory relief is spiralling out of control and many anomalies exist. It is unsurprising business has little confidence in the current system and are demanding urgent reform.”

Flipping is projected to have cost the Treasury and councils more than £4m in lost tax this year alone, at a time when their budgets have been squeezed.

A spokesman for the Department for Communities and Local Government said: “The Government has deliberately targeted tax break support for small businesses, which are lifeblood of the economy and crucial to recovery. The rules are robust and clear. Only holiday homes which are available for 140 days or more every year would be classed as a commercial property, protecting against any exploitation. It is a criminal offence to make a false declaration.”

Business rates have shot up the political agenda in recent months, with business leaders and retail bodies calling for reform. The tax is calculated on the rental value for each business property. However, the valuation was last calculated in 2008, before the financial downturn, and many say that they are overpaying their rates because their rents have fallen.

The Government has capped the increase by 2 per cent this year, rather than in line with inflation, however a decision to postpone the next revaluation by two years to 2017 has caused outcry among businesses.

Last month, The Independent revealed that £2bn is unaccounted for after the Government overestimated the amount it would have to pay out in appeals, despite rules which state that business rates must remain revenue neutral.


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