‘Significant risk’ that council may have to refund large sums of Council Tax to holiday home owners

Dale Spridgeon Local Democracy Reporter

There is a “significant risk” that a Welsh council may have to refund large sums of council tax as a consequence of a crackdown on holiday lets.

Around £900,000 of surplus funds has been transferred to an earmarked reserve  to mitigate against potential refunds that may have to be paid in 2025/26.

The matter was discussed during a discussion of the budget by Anglesey Council’s executive on Tuesday, February 18.

A report had stated that the council’s core council tax income was currently forecasted to be £432,000 this year –  above its budget.

Historically, forecasted levels of council tax fall during the year as recovery action is undertaken and taxpayers come forward to claim exemptions and discounts that they are entitled to.

Rules

Recent changes in the eligibility rules for business rates on self catering accommodation had seen a number properties being transferred back from business rates to council tax, which had increased the number of properties subject to the second home premium, it stated.

The premium is designed to encourage owners of empty properties and second homes to return the property to general use.

With  that, the report noted, comes the risk that the number of properties paying the premium could reduce significantly during the year.

And changes to Welsh Government rules , that came in April, 2023, requiring holiday lets in Wales be occupied for at least 182 days a year to qualify for business rates were also having an effect.

The report noted: “The movement of self catering properties to council tax, as a result of the higher threshold to be eligible for inclusion on the business rates register has been significant, with the commencement date for council tax being back dated to April, 2023, in a large number of cases.

“It is likely that a large number of these decisions will be appealed, with successful appeals resulting in properties being transferred back to the business rates register.

“In addition, self catering operators will do all they can to reach the new thresholds, given the financial benefit it brings to their business.

“This may result in properties being reassessed and being returned to the business rates register.”

“As a result, there is a significant risk that the council may have to refund large sums of council tax in 2025/26.

“To mitigate the risk, £900k of surplus funds has been transferred to an earmarked reserve to fund refunds that may have to be paid in 2025/26.”

Appeals

Speaking at the meeting, council officer Marc Jones said:  “If a Band D house was £2,000, with the premium it would be £4000,  that will go to £8,000. A lot of appeals to this decision will be presented, or the owners will have changed their arrangements and increased the number of days the house is let, and there is a possibility that they will have moved back to business rates…

“Although it shows we have had additional income this year, I foresee some of this will go back, and that figure will decrease, so we have put some reserves there to make sure we aren’t hit hard by that situation, in 25/26.

“But we are in a stable situation at the moment and the budget puts us in a good position as we move into 25/26.”

The report also stated that a change in the staffing structure of the council tax team had allowed more resources to be directed towards identifying tax avoidance.

This included claiming exemptions to which the taxpayer is not entitled, not informing the council of changes in circumstances that impact on the level of council tax due and second home owners failing to inform the council that the property is not their primary residence.

The report said “This work is having an impact on the level of tax charged in both the standard council tax and the second home and empty property premium.”