Thursday, 2 October 2014

The West Country: taxing second homes

The issue of tax and second homes has been around for some time - and not only in the UK:
Futures Forum: East Devon: taxing second homes
Futures Forum: Devon: taxing second homes
Futures Forum: France: taxing second homes

The issue has resurfaced, with the West Country particularly affected:
Council could miss out on £20m thanks to second homes scandal | West Briton
Exclusive: Second home owners ‘flip’ properties to become 'commercial' premises to avoid rates - Property - House & Home - The Independent

There has been substantial coverage in the Western Morning Express:

Second home owners in Devon and Cornwall avoid tax by using loophole

By Western Morning News | Posted: September 15, 2014

Hard up Westcountry authorities risk losing more than £30 million a year in council tax through a loophole which allows second home owners to pay no rates at all. 

Devon and Cornwall’s spectacular coast and countryside have long made them favourites for holiday homes with estimates putting the current total at 26,000. But it has emerged that 1,000 such homes in Cornwall have been “flipped” to be classed as holiday lets – allowing owners to avoid paying both council tax and business rates – leaving the council £1.5 million worse off.

With about 14,500 second homes in Cornwall, the potential loss could be as high as £20 million a year. Including Devon, the shortfall – at a time when council’s are again faced with massive budget cuts – could reach £36 million.

Councillor Alex Folkes, Cornwall Council cabinet member for finance and resources, said he would look to raise the issue with ministers, adding: “Clearly if this is something that is being done to avoid paying taxes it is a concern. We will have to look into it and see what we as Cornwall Council can do to ensure people are paying the tax for which they are liable. If someone is claiming their property is a rental property and is exempt by the low level of income we would went to see proof they are genuinely a rental property. If 1,000 properties have done this, it is over a million pounds we are missing out on. We will look to have a conversation with ministers as soon as possible. It is tax avoidance and while it is legal, it is wrong.”

Second home ownership has been a divisive issue in recent years as house prices, particularly in the most favoured coastal spots, have ballooned far beyond the reach of locals.

With many communities left as virtual ghost towns out-of-season, fears have also been raised for the future of local amenities such as shops, pubs and schools. Most second home owners pay council tax but by switching to a holiday let they can take advantage of small business rate relief, which enables them to claim up to 100 per cent off. To qualify, the properties only have to be available to let for up to 140 days a year.

In Devon, the extent of the “flipping” problem remains unclear. Exeter City Council said the number of second homes had remained static, at 448, over the last year.

Teignbridge District Council said it had 1,235 properties classed as second homes and another 416 classed as business rate properties, although it is not known if any have switched lately.

A Teignbridge spokesman said: “We expect to see genuine proof a property claimed as a rental home is a rental property and we do everything we can to make sure people are paying the correct tax or rate for their property. For example we ask for proof of holiday letting before considering any changes between council tax and business rating. This process is independently verified by the Valuation Office and we abide by their decision.”

Business rates expert Paul Turner-Mitchell who made a request under the Freedom of Information Act found 2,373 properties in the UK had been flipped since 2010. He said most people would view it as a “tax avoidance scheme for the rich”.

A report to Cornwall Council’s homes committee, which met on Friday, warned people could use the loophole if the council looked toincrease revenue from second homes.

Lib Dem councillor Sue James said: “The vast majority of second homes owners are paying council tax at the moment but if we suddenly bring something in, there is a risk we could lose that.” She added: “I think a levy is a good idea in principle but we need to look at it carefully rather than go off half baked.”

Second home owners in Devon and Cornwall avoid tax by using loophole | Western Morning News

The opinion and letters pages have been pretty unanimous:
WMN opinion: Second home owners must pay their fair share of tax | Western Morning News
WMN Letters: Close up the council tax loophole | Western Morning News
WMN Letters: Second-home owners should pay local tax | Western Morning News
WMN Letters: Exploding the myths on holiday homes | Western Morning News

Today's edition of the WMN carried the story from the perspective of the Housing Minister:

Second homes 'have little impact on prices' claims housing minister

By Western Morning News | Posted: October 02, 2014

Second home ownership is having little impact on house prices, the Housing Minister has said. Tory minister Brandon Lewis has told the Western Morning News the Government has no plans to restrict the number of holiday homes despite claims part-time occupancy is pushing up house prices in the Westcountry and undermining local services.

Devon and Cornwall have among the highest levels of home ownership in the country. The Liberal Democrats says they would consider changing planning laws to restrict second home ownership.

But Mr Lewis said: “We have no plans to change (the laws). Local authorities have more powers than they used to. I don’t think it’s for us to get involved in putting further restrictions on people and the type of properties we have. What we have got to do is deal with the issue and make sure there are enough homes.”

He added: “If you look at the number of second homes across the country it is such a small number. It’s rather like the point people make around some of the London properties and overseas ownership. It is actually a very, very small percentage of the market. In the wider context it doesn’t have that much of an impact. What we do need to do is make sure there are homes available for people in those areas.”

Mr Lewis, a minister in the Department for Communities and Local Government, signalled councils would face more cuts. Asked, twice, if council cuts would be “less severe”, Mr Lewis replied: “I’m not going to pre-judge what’s going to happen after 2016 – we haven’t got the allocations yet.”

Instead, he said local government funding amounted to 25 per cent of all public spending – which meant it would have a “hugely important part to play” in future cuts. And he pointed out that council reserves had been built up to a “record level of almost £21bn” – and were rising by £3-4bn every year.

Mr Lewis said: “So, when local councils claim they don’t have enough money, I do struggle to compute that with the fact that they are building up £4bn a year in surpluses. And it’s got a long way to go in terms of savings – there are still not enough councils taking on innovative work, not enough small district councils going through shared management and services.

Asked if councils could “cope with more cuts”, Mr Lewis said: “I think they can” – claiming satisfaction with town hall services is “way up on where it was”. He urged councils to embrace more outsourcing and to cut or scrap parking charges

Second homes 'have little impact on prices' claims housing minister | Western Morning News
Housing Minister says second homes not a problem and councils have plenty of money | East Devon Alliance

Meanwhile, there have been attempts to tax second homes, but to little avail:

Proposals to legislation to cap the number of second homes in popular holiday areas such as Cornwall, Devon and Somerset have been dropped.

Andrew George, Liberal Democrat MP for St Ives, wants new laws to make housing more affordable after being selected as the first MP to take forward a Private Members’ Bill in this parliamentary session.

The original draft of his Affordable Homes Bill included proposals to limit the so-called “bedroom tax” housing benefit crackdown and new planning restrictions on allowing more part-time holiday homes.

But ahead of the Bill being debated on Friday [5th september], Mr George has revealed a lack of support from the Conservatives and Labour has forced him to drop measures to tackle second home ownership that critics say undermines services and pushes up house prices to unaffordable levels.

Second homes curb dropped to get support for axing ‘bedroom tax’ | Western Morning News


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