Wednesday, 18 July 2018

Time to end the second homes’ scam

Over the last decade particularly, there has been a robust discussion about what level of council tax should be incurred by second homes.
Naturally, second home owners have argued that a second home should have a discounted council tax because it is only being used for part of the time and the occupants are highly unlikely to be using the majority of the services – adult social care and children’s services – which are responsible for the bulk of council expenditure.
Others argue that second homes are actually used for most of the year – if not bY the owner, then by families and friends and through holiday lets – and that there is no justification for any reduction.
At the moment, in England, councils can offer a second homes' discount of up to 50 if no one lives in the property on a permanent basis. This depends entirely on the policy of the local authority where the holiday home or second home is located. [There are some exceptions relating to individuals who are required to live elsewhere because of their job or if the second home is a pitch with a caravan on it or a mooring occupied by a boat.]
However, the debate has become more heated and complex because the purchase of dwellings as second homes, particularly in tourist areas including the Peak District, has made owner-occupation quite unaffordable for local working families.
Many local people have argued that the predominance of second homes has destroyed the local economy and infrastructure; there are few resident children to go to local schools and there has been a collapse in the use of local shops, pubs and post offices making them uneconomic. There has, therefore, been pressure for council tax on second homes to be set at premium levels to discourage second home ownership in those areas.
Then, last November, Chancellor of the Exchequer Philip Hammond said he would give local councils the power to charge up to 100pc extra for council tax on unoccupied homes, up from 50% extra since April 2013. This reversed the direction set by the previous coalition government which had cut the powers for councils to tackle empty homes in their areas.
But, something else has been going on. Letting properties for holidays can be seen as running a business. And, if the business is small enough, it not only doesn’t require council tax to be paid on the property, it is also eligible for 100% tax relief on business rates.
There has been a dramatic increase in the number of second homes that have been registered as small businesses, thus avoiding all local taxes and making absolutely no contribution to the cost of local services (like highways maintenance, refuse collection, planning, parks and libraries) that all the visitors are using. Second home owners can do this if they state that the property is available for letting for 140 days per annum. It is clear that, in many cases, there is little letting at all, and certainly not to the extent intended by the legislation.
The issue is not dividing on party political lines. Some of the strongest complainants about the current situation are local and national elected Conservatives.
Lord Deben (the former Conservative Secretary of State for the Environment, John Selwyn Gummer) thinks that
‘…some second home owners are telling a very direct lie. They have no intention of running a business. It is something that angers people when their neighbours are not paying their way. It is very simple to change.’
Property consultants are complaining that businesses are picking up the bill for this scam. According to Colliers International
‘Second homeowners are being subsidised by ‘many millions of pounds’ at the expense of firms paying full business rates’
and say that system is ‘unfair’, as it gives these holiday homeowners a ‘windfall’ of millions of pounds in tax relief.
This week, in answer to my written parliamentary question*, local government minister Rishi Sunak confirmed that there are now more than 47,000 properties which have been designated as holiday lets meaning they are excluded from paying council tax but on which business rates should normally be paid. However, the 100% Small Business Rate Relief means that most are paying nothing at all. This could be costing councils up to £80 million per annum in lost council tax income.
This isn’t fair to local families who are paying their council taxes. Neither is it fair to other businesses. The reality is that councils are being short-changed and this scam is distorting the proposals for the devolution of the business rate.
Six months ago, Mr Sunak said the situation was being investigated. Now, in response to my written question, the Minister has acknowledged the scale of the problem but just says “…the Government takes any concerns about possible council tax avoidance seriously, and is considering whether the criteria under which holiday lets are valued for business rates are appropriate.”
Let’s be clear. The time for investigation is long gone.
It’s now time to act to end this scam.