MS slams ‘disgraceful encouragement’ of second home owners to exploit council tax loophole

Gareth Williams, local democracy reporter

A north Wales MS has accused a holiday lettings firm of “encouraging” second home owners to exploit a “loophole” allowing them to avoid paying any council tax.

During a Senedd debate, Rhun ap Iorwerth pointed to an “owners newsletter” sent out this month by Anglesey-based Menai Holiday Cottages , which also offers properties across much of Gwynedd.

While acknowledging its legality, Mr ap Iorwerth described the newsletter as “encouraging” second home owners to avoid paying local taxation by exploiting what many have described as a “loophole.”

The newsletter says: “For those of you not on small business rates, now is a better time than any to consider registering your second home as a Furnished Holiday Let (FHL) to claim tax relief.

“Take a look at our blog to find out if your property may be eligible.”

Current rules mean that if a second home is available for commercial letting as self-catering accommodation for 140 or more days in a year, and actually let for at least 70 days, it qualifies to pay non-domestic rates rather than council tax.

But this, according to the Welsh Local Government Association (WLGA), often results in them also being eligible for Small Business Rate Relief, meaning they can end up paying no taxes at all into the Welsh public purse.

Chester-based Sykes, which owns Menai Holiday Cottages, says that the newsletter was sent to small tourism businesses who have suffered greatly during the pandemic,  but stressed they would never encourage anyone to falsely claim tax relief they were not legally entitled to.

But addressing the Senedd during a debate on second homes, following submission of a 5,386 signature petition calling on local authorities to be given more powers to control the housing market, Mr ap Iorwerth described the practice as “disgraceful.”

Referring to a copy of the Menai Holiday Cottages newsletter, he told the Senedd on Wednesday: “Now, that email isn’t encouraging law breaking, there is after all a loophole that makes it far too easy in my view for a property to be registered as a holiday lets business, leading to the payment of no local taxes.

“But remember, many of those who’ve gone through that process have received payments of many thousands of pounds as Covid compensation this year.

“Now I think it’s pretty disgraceful, here we see one of the UK’s biggest holiday let businesses actively encouraging second home owners to avoid paying local taxation, the kind of thing that creates growing inequalities within the housing sector.

“I’ll make it quite clear, holiday lets are an important part of our tourism offer in places like my constituency.

“Local, well-run tourism businesses make a big contribution to the economy and they should be supported, in fact this was shared with me by a tourism business owner who was fuming about this.

“But there is a loophole, it’s undermining our housing stock and it needs to be closed.”

‘Suffered’

A spokesperson for Sykes Holiday Cottages said: “This newsletter was sent to owners who currently market their properties with us.

“These are small tourism businesses, many of which have suffered greatly as a result of the coronavirus pandemic with very little government support.

“We would never encourage anybody to falsely claim tax relief to which they were not entitled.”

While Gwynedd recently voted to increase the second home premium from 50% to 100% from April, most authorities have so far resisted implementing the maximum allowed premiums – essentially doubling the charge paid if it were not a second home – fearing it would spur on more to explore ways of not paying council tax at all.

A spokesman for Anglesey Council, which currently charges a 35% second home premium, said: “Under present rules we don’t have the powers to stop the owners of second homes from transferring to non-domestic rates if they reach the requirements.

“We are concerned about the numbers continuing to transfer and have asked the Welsh Government to review the rules.

“The authority expects the Valuation Office to assess every application and ensure it reaches the requirements and continues to do so in future.”

Cllr Dyfrig Siencyn, the leader of Gwynedd Council, added: “Recent research shows that 60% of local people are priced out of Gwynedd’s housing market while also having the highest percentage of second homes in Wales.

“As a council we have carried out detailed research on this important matter, and have offered practical solutions which would allow the government to put right the unintended consequences of the current arrangements.

“This recent example once again illustrates the need for the Welsh Government to take immediate action to prevent second homeowners and holiday let owners from moving their properties from the Council Tax rate to the Business Tax Rate.

“It is wholly within their power to remedy the situation, and we once again call on the Welsh Government to act as a matter of urgency.”