Labour is reviewing rules that allow second homeowners to avoid paying council tax by reclassifying their properties as holiday lets and moving them into the business rates system, with pressure mounting to close the loophole.

Under the current rules, owners can qualify for small business rates relief by letting a property for at least 70 nights a year and making it available for 140 days. In many cases, this means they pay neither council tax nor business rates if they let only one property.

The Government appreciates that the excessive concentration of short-term lets can impact on the availability and affordability of homes.”

Housing Minister Matthew Pennycook (pictured) says “additional powers” for councils on short-term lets and second-home taxation are “under review”.

He told the Commons: “The Government appreciates that the excessive concentration of short-term lets can impact on the availability and affordability of homes, both to rent and to buy.

“We continue to consider what additional powers we might give local authorities to enable them to respond to the pressures created by such concentrations.”

Targeted relief

The Telegraph reports that ministers pledged in a consultation published in November to “ensure that any reliefs are appropriately targeted” amid concerns the system is being used to manage tax liabilities.

Andrew George, Liberal Democrat MP for St Ives, called it a “massive, gaping tax loophole”, adding: “You would have thought Labour would see the public resource in doing that. In my mind, it’s an obvious thing to do, and it’s a failing of the Government.”

Ministers are expected to publish their response later this year.