Anglesey Council set to hike second homes tax but owners threaten to exploit ‘loophole’
Gareth Williams, local democracy reporter
Decision makers on Anglesey are set to further increase the tax premium charged on holiday homes.
A report will ask the council’s Executive to hike the levy on second homes from 35% to 50% next year, while planning to increase it further to 100% by 2024. But almost half of second home owners on the island threatening to exploit a tax “loophole” if the move is carried out.
The popularity of many coastal communities as second home destinations has been seen as a major factor in the pricing out of many locals, with 7% of the island’s entire housing stock said to be empty for most of the year.
Figures from the 2011 census showed that 43% of homes in Rhosneigr and 34% in Trearddur Bay were empty for most of the year, but campaigners believe that the ratio is now as high as 70% in some villages.
But while a recent public consultation reported general support towards efforts to stem their popularity, it also found that such a move would prompt 45% of second home owning respondents to try and transfer their properties to non-domestic status, prompting further calls on the Welsh Government to shut the tax “loophole.”
2017 saw Anglesey become of the first authorities to bring in the council tax premium, with the proceeds targeted towards helping local first-time buyers onto the property ladder.
With 2,670 properties on the island currently paying the extra charge, its estimated that increasing it to 50% would bring in an additional £500,000.
Most of the 1,390 consultation respondents felt that more action was needed to stem the snapping up of second homes with 67.5% stating they felt that the current premium of 35% was too low, with only 14.6% feeling it was too high and another 7% believing felt that no premium should be charged at all.
But 45% of second home owners stated that they would attempt to transfer their property to the non-domestic rates if the hike were implemented, while 30% would accept the premium with the remaining 25% planning to either sell their property or rent it to a local resident.
Neighbouring Gwynedd Council already charges 100% but several others, including Anglesey, have so far resisted the maximum charge amid concerns it could encourage more second home owners to exploit a “loophole” to avoid paying the premium, or often any council tax at all, by “flipping” towards paying non-domestic rates.
A transfer can be actioned if it’s proved that the property is available for up to 140 days in a year and actually let for at least 70.
But with most self-catering holiday accommodation being eligible for Small Businesses Rates Relief, it often results in no contribution at all into local authority coffers, with island number crunchers estimating that Anglesey Council was losing out to the tune of £1m a year in lost income.
“It was clear that a significant proportion of the respondents had polarised views,” noted the report.
“Local residents expressed the opinion that the high number of second homes on the Island were having a detrimental effect on local communities and the Welsh language and that the premium should be raised to the maximum, whilst second home owners identified that they brought benefits to the local economy and that the problems of higher house prices and the inability of local people to afford to purchases houses was not due to second homes and was not unique to Anglesey.
“They expressed the opinion that increasing the premium would not resolve the problem and that the problem would not be solved without improving the economy and increasing the average salaries for workers on Anglesey.”
While the bulk of the premium’s proceeds will continue to be ringfenced to help local people secure housing in their own communities, its also proposed that the authority employs two officers to deal with the increased workload as well as be more proactive in identifying tax avoidance.
Anglesey’s decision is also set to include a caveat heaping more pressure on the Welsh Government to act, despite ministers promising a “three pronged approach” which included ensuring all second home owners pay their fair share to the public purse.
The housing minister, Julie James, said that all second home owners should be making a “fair contribution to the communities in which they buy property” and suggested more stringent checks and potential changes to local taxes.
The 12 week Government consultation, launched back in August, is seeking views on the maximum level premiums should be set as well as the criteria for a property to be defined as non‑domestic, self-catering accommodation.
The council’s report concluded: “Over 200 second homes have transferred to the Non Domestic Rates register over the past 12 to 18 months but, despite this, the level of second homes paying the premium has continued to increase with more properties being bought as second homes.
“An increase in the premium may encourage second home owners to sell or let their property and may deter others from purchasing properties for use as second homes.
“It is difficult to assess what the increase should be to achieve this objective but, clearly, the current level of 35% is not sufficient to limit the numbers.
“If the council decides to increase the premium significantly and it fails to reduce the number of second homes, it should give the council greater leverage to ask Welsh Government to use other powers to reduce the number of second homes and self catering accommodation e.g. changing planning laws, closing the loopholes which allow second home owners to avoid paying the premium.”
A decision is expected when Anglesey Council’s Executive meets next Monday, October 25.