Holiday home tax hike a ‘blunt instrument’ without closing ‘loophole’

Gareth Williams, local democracy reporter

Anglesey Council’s Executive has unanimously backed plans to increase the second home premium from 35% to 50%.

But the move has been described as a “blunt instrument” without the shutting what has been called a tax “loophole.”

It set to be introduced from April 2022 as part of the budget setting process, will also heap further pressure on Cardiff Bay to close the “loophole” allowing owners of such properties to avoid paying any council tax at all if certain criteria are met.

Despite the Welsh Government promising a “three pronged approach” to tackling the housing crisis which has plagued much of rural Wales – further heightened as a result of Brexit and the pandemic – decision makers on the island reiterated the need for national action.

While some councillors admitted favouring a full 100% premium as permitted by current Welsh legislation, the numbers “flipping” their properties to non-domestic rates was flagged up as a stumbling block at this point, but will remain a medium-term aim.

A transfer from domestic rates can be actioned if it’s proven that the property is available for up to 140 days in a year and actually let for at least 70 as self-catering holiday accommodation.

But with most being subsequently 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 is already losing out to the tune of £1m a year.

Members of the Executive, meeting on Monday, were told that around 1,300 properties on Anglesey are defined as self-catering properties and registered for non-domestic Rates – up from 950 in March 2021.

With this past summer’s consultation garnering 1,390 responses, most backed increasing the premium to 50%.

But it also found that any increase would also prompt 45% of second home owning respondents to try and “flip” their properties, although a quarter said they would be forced to consider selling up or renting theirs to locals.

Of all responses, 67.5% 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.

‘Wake up and smell the coffee’

Cllr Robin Williams, the portfolio holder for finance, described the council tax premium as only a “blunt instrument” for as long as the “loophole” remains in place, urging ministers to “wake up and smell the coffee.”

“Many have used the loophole and transferred to non-domestic rates, not paying any tax at all,” he added.

“The Welsh Government needs to be radical and make necessary decisions, not to stop tourists which we have a dependency on, but to stop this pattern of houses being bought as second homes which is killing our communities and language.

“It’s not just happening on the coast by now, it happening in areas where tourism hasn’t been strong in the past, due to the rise of AirBnB.

“In my view the Government needs to change planning laws or allow us to do so, meaning anyone who wants to change a dwelling into a holiday home would first need planning permission.”

Suggesting changes to taxation laws on holiday lets, he also reiterated calls for the introduction of a modest tourist tax on overnight stays, as is found in many cities or holiday resorts around the world.

Neighbouring Gwynedd Council and Swansea already charge 100%, with Pembrokeshire also recently committing to hiking theirs to the full amount, but Cllr Williams believed such a move at this stage on Anglesey would only prompt more to “flip.”

“There’s no evidence to show what effect it will have on Gwynedd and Swansea, and I fear more will register as non-domestic as a result of the (existing) loophole,” he added.

“I’ve always said I’d prefer us to take smaller steps than to jump in.”

Cllr Alun Mummery, the housing portfolio holder, said  he would “increase the premium to 100% tomorrow” if he thought it would work, but added that councils were “swimming in circles” as they wait for Welsh Government action.

The recommendation, unanimously backed by the Executive, also includes an aspiration to gradually increase the premium to 75% and then to 100% by 2024, but also to continue placing pressure on the Welsh Government regarding the concerns raised.

It is also proposed to employ two officers to deal with the increased workload and to be “more proactive in identifying tax avoidance,” with the bulk of the extra income to be directed to funding schemes to help local people buy properties and to promote the local economy.

The Executive’s findings will be presented to full council in March as part of the 2022/23 budget setting process.

‘Pleased’ 

Responding to the decision, island MS Rhun ap Iorwerth said: “I’m pleased that the council intend to raise taxes on second homes.

“This is part of a suite of measures that we need to try to address the impact of second home ownership on the local property market.

“Another urgent measure needed alongside the increase in taxes is to close the loophole which allows the registration of a second home as a

business, thus avoiding local taxation altogether, as well as a number of changes to existing planning regulations.

“I’ve raised this ‘loophole’ issue with Welsh Government time and time again in recent years, and whilst I’m pleased that they have recognised the problem more recently, we need more urgency in the response.”

Ynys Môn’s MP, Virginia Crosbie, has also been approached for comment.

The Welsh Government has already suggested it plans to take action in the field, including ensuring all second home owners pay their fair share to the public purse.

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 housing minister, Julie James, said that all second home owners should be making a “fair contribution to the communities in which they buy property” while also suggesting more stringent checks and potential changes to local taxes.