UAE owners of British rental properties may face higher tax bills

Government clamps down on loophole to stop owners posing as holiday letting companies

Properties in the town of St Ives in Cornwall, England. In parts of the country with a higher proportion of holiday lets, councils and local MPs have campaigned for years to ensure second home owners pay appropriate tax rates. Getty ImagesShow less

UAE owners of second homes in the UK may have to pay full business rates if their property does not meet tighter tax rules for holiday lets, according to the British government.

In a bid to clamp down on owners pretending their homes are holiday letting companies, second property owners can only register for business rates if their properties “are genuine holiday lets”, the Treasury said on Tuesday.

In England, many holiday lets are liable to pay business rates, rather than council tax, when an owner declares that they intend to let their property in the next year, the Treasury said. These owners can also claim relief of up to 100 per cent.

“The change announced today will ensure owners of properties that are not genuine businesses are not able to reduce their tax liability by declaring that a property is available for let, but make little or no realistic effort to actually let it out,” the Treasury said in a statement.

In parts of the country with a high proportion of second homes, councils and local MPs have campaigned for years to get the loophole closed and ensure that second homeowners pay appropriate tax rates.

The previous system let unscrupulous owners make no contribution towards local services in the areas where they own properties.

In Cornwall, for example, media reports estimate the county loses as much as £10 million ($13.8m) a year because of holiday homes not paying business rates or council tax.

North Cornwall MP Scott Mann welcomed the government’s clamp down and said it was "wrong" that second homeowners pay no business rates and are exempt from council tax through the loophole.

“Addressing this issue of fairness in the taxation system will be especially welcome in communities such as Padstow, Rock and Boscastle," he said.

The move was among 30 tax updates, consultations and documents published by the Treasury in its 'Tax policies and consultation update', dubbed Taxation Day, on Tuesday, just weeks after the budget.

The government is looking to strengthen tax policymaking and modernise the system as part of a 10-year plan to build a “trusted, modern tax system”.

Other changes saw the government's Air Passenger Duty consultation published, which aims to cut the cost of domestic flights across the UK.

The consultation is also looking for input on supporting the UK’s pledge to hit net-zero emissions by 2050 by boosting the number of international distance bands, where those that travel the furthest pay the most duty – a move reinforcing the principle that the “polluter pays”.

However, Rain Newton-Smith, chief economist at the Confederation of British Industry, said while the tax day announcements included some mention of how the tax system can support the UK in reaching net zero, “it’s nowhere near enough”.

“More work will be needed to ‘green’ the UK’s tax system,” she said.

Another significant move by the Treasury was the decision to cut inheritance tax form-filling for estates that fall below the main threshold for the levy, which can be up to £1m for the surviving partner in a couple. The decision could benefit more than 200,000 estates every year.

Financial secretary to the Treasury Jesse Norman said the tax updates are part of the government’s pledge to increase the transparency, discipline and accessibility of tax policymaking.

“These measures will help us to upgrade and digitise the UK tax system, tackle tax avoidance and fraud, among other things,” he said.

Separately, UK finance minister Rishi Sunak said on Tuesday that an international deal to agree new rules on corporate taxation is within reach, a move that could offer fresh clarity for businesses operating digitally across borders.

“Digitalisation has brought enormous benefits to consumers and businesses, but it’s also highlighted that the current international tax framework just isn’t fit for purpose,” Mr Sunak told a Bloomberg event on Tuesday.

“That solution is within our grasp and I think that is positive.”