Demand for Welsh Government to close “loophole” on second home council tax

(Title Image: Daily Post)

The Motion

The Senedd:

 

  • Calls on the Welsh Government to ensure that council tax is paid on second homes.

An unacceptable injustice

Sian Gwenllian AM (Plaid, Arfon) told the chamber she’s been raising this issue for some time and briefly explained what the problem was:

“Although owners of second homes are among the richest people in Britain, in Wales they can use the system in order to avoid paying council tax. By registering their second property as a small business, second-home owners can avoid paying council tax by transferring to the business rate system. But, given that the rateable value of their property is low, 94% of them are eligible for business rate relief. That is, they don’t have to pay business rates either. But they are not businesses – they’re domestic homes.”
– Sian Gwenllian AM

The problem was tied to the Local Government Finance Act 1988 which allowed second home owners to move property around lists in the manner described. There are 5,000 second homes in Gwynedd and while Gwynedd Council applies a council tax premium, 1,000 of the second homes are benefiting from the “loophole”, costing Gwynedd Council £1.7million a year.

Rhun ap Iorwerth AM (Plaid, Ynys Môn) later added it costs Anglesey Council at least £1million and £5million across Wales as a whole on average.

Mike Hedges AM (Lab, Swansea East) agreed and two of the most loathed taxes amongst the wealthy are council tax and business rates because they’re historically unavoidable. Given that the average weekly rent of a holiday property in Wales is £1,000, if the homeowners were renting them for the minimum period then they should be making at a minimum £12,000-15,000 and HMRC should be chasing them for it.

“….there are over 24,000 second homes in Wales, with almost 5,000 of them in Gwynedd, and over 4,000 in Pembrokeshire. In 2017-18, almost 40% of the homes sold in Gwynedd and a third of the homes sold on Anglesey had been sold as second homes. So we are talking about a broader economic problem here, aren’t we? Large parts of Wales, particularly those areas with the highest level of second homes, are also among the areas with the lowest levels of income and salary. So, the reality is that these are areas where the housing market doesn’t represent the local economy.”
– Llyr Gruffydd AM (Plaid, North Wales)

Mark Isherwood AM (Con, North Wales) – slightly rambling – argued that the minimum 70-day occupancy rule (to qualify as a holiday let for business rates) should be shortened, though he believed there had to be checks to ensure current rules were being properly monitored and enforced.

Mark Reckless AM (BXP, South Wales East) was also sceptical as to whether claims about second homes were correct. The “loophole” was introduced because the 50% discount for second homes was less than business rates at the time, but now it’s the other way around. It was fair and appropriate to have a system for collecting tax for genuine holiday lets and he called for Wales to adopt HMRC rules for furnished holiday lettings which effectively extends the minimum letting period to at least 15 weeks.

All households should pay their dues

The Welsh Government supported the motion. Finance Minister, Rebecca Evans (Lab, Gower), said it was a responsibility for all households to make a financial contribution to fund local services. There are measures in place for councils to enforce payment of council tax and collection rates were at 97%.

The Minister didn’t accept that this was a form of tax avoidance or “loophole”, but it was worthy of another look:

“The reality is that transferring to the rating list is not avoidance, and local authorities do benefit from non-domestic rates income as well as council tax….where a business is eligible for small business rate relief, the Government does fund that rate relief in full, to the benefit of local authorities. So, it can’t just be a case of switching to one list by choice; there are some criteria that must be met, and the question that we have to grapple with is, ‘Have we got those criteria right?'”
– Finance Minister, Rebecca Evans

The motion was agreed unanimously

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