Second home owners exploiting an anomaly in the business rates system have been accused of taking part in a tax avoidance scheme by a rating expert.
The claim comes in an Independent exclusive which has unearthed evidence of householders ‘flipping’ property from residential to commercial in order to avoid paying council tax by claiming small business rates relief.
This is possible because commercial properties with a rateable value of £6,000 or less are eligible for 100% business rates relief – meaning the owners are paying no property tax at all.
According to data, 2,373 residential properties have been reclassified as holiday homes during the past five years with a projected cost to the Treasury of over £4 million per year.
“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,” said business rates expert Paul Turner-Mitchell.
“The abuse of reliefs is epidemic, mandatory relief is spiralling out of control and many anomalies exist.
“It is unsurprising businesses have little confidence in the current system and are demanding urgent reform.”
A spokesman for the Department for Communities and Local Government explained that the relief scheme had been introduced and extended because small businesses are the ‘lifeblood of the economy and crucial to recovery.’
“The rules are robust and clear,” he added. “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.”
The news follows last month’s revelation that an estimated £2 billion earmarked for business rates refunds was unaccounted for, and is certain to add to calls for a shake-up of the system.
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