Council tax ‘loophole’ costing Cornwall millions is ‘almost criminal’

A legal ‘loophole’ which allows second homeowners to flip their properties to short-term holiday lets and then claim back council tax refunds for as far back as 33 years ago has been branded ‘almost criminal’ by Cornwall Council’s cabinet member for resources.

The practice has cost the council around £10 million so far this year. Independent councillor Adam Paynter, who is also the council’s deputy leader, has dubbed it ‘deeply unfair’ as it’s affecting a local authority which has has already seen a £11m overspend for vital services in the first financial quarter of this year.

Cornwall Council, which has a debt of over £1.5 billion, said there had been an increase in people switching their second property to a holiday let since it introduced a second homes council tax premium last year.

Second homeowners who change their home to a business can apply for small business rate relief if it’s run as an Airbnb or holiday let. They can also insist the local authority backdates their claim, in some cases as far back as 1993.

Cllr Paynter told us: “Unfortunately for the council, we are only compensated for three years of retrospective business rates. We could pay somebody back £60,000 for council tax for 33 years, but the money that the council gets back is only the lost business rates for the past three years,  so we’d only get about £6,000 back.

“So far this year, we think it’s cost us £10 million. It’s deeply unfair. It would be fairer if people could only go back and claim three years of council tax. Three years would be plenty but allowing people to backdate it for 33 years is madness.”

There has always been an issue with loopholes concerning second homes and whether they could be classed as holiday businesses or not, with the Government tightening up the rules in recent years. Cornwall Council, with the help of the Duchy’s MPs, wants this current loophole stopped.
Cllr Paynter added: “Years ago when we looked into the loophole of whether a second home was a business or a council tax property, obviously the owner would benefit from getting small business rate relief and effectively pay nothing or pay council tax, but the council didn’t lose out much because we either got the council tax or retained the whole business rate.

“The difference for the council wasn’t much, whereas under this system of having to repay we’re losing out massively. Everyone I speak to about it is astounded that it’s even a thing – it seems criminal really that we have to pay that money back.”
He said: “We’ve talked to all of our MPs about it and they all think it’s horrendous and are lobbying, but at the minute we haven’t got any traction of whether it will be changed.”

Cornwall Council’s Liberal Democrat leader Leigh Frost told us: “If you convert a property into an Airbnb or a holiday let that’s absolutely fine, but I don’t see why you should be able to backdate it. That seems outrageous and I know all six of our MPs are pushing that in Government at the moment.

“It is fundamentally wrong. How can you budget effectively when money you have budgeted for and spent, you then have to pay back through no fault of your own? It’s ludicrous.”

Andrew George, the Lib Dem MP for St Ives and West Cornwall, met housing minister Matthew Pennycook MP earlier this month to urge him intervene on the matter.

He said: “This isn’t about the politics of envy, but about social justice. It is simply wrong that tens of millions of pounds of taxpayers’ money is spent underwriting second homeowners who flip their properties to holiday letting, when there are thousands of local families who can’t afford their first home.

“Cornwall Council is under already facing intolerable budgetary pressure – which could mean having to cut essential public services – without having to subsidise wealthy second homeowners. This has already gone on for far too long. It has to stop.”

Jayne Kirkham, the Labour MP for Truro and Falmouth, has previously raised the question with Alan Campbell, the leader of the Commons, in Parliament. Mr Campbell told her it was a concern held by members of all political persuasions and was why the Government had “published a call for evidence seeking views on the tax treatment of holiday lets, which will publish its evidence in due course”.

The ‘loophole’ is one of the reasons why the council has announced it is looking into reducing council tax support for around 19,000 households in Cornwall as a way of saving millions of pounds.