Welsh Government leaving a ‘loophole’ for landlords in second homes legislation says property expert

The Welsh Government have left a “loophole” in its plans to crack down on the number of second homes in Wales, a property expert has said.

Daryl McIntosh, policy manager for Propertymark, told the Daily Mail that second home owners could potentially claim to be landlords in order to avoid a higher land transaction tax rate.

The Welsh Government announced an increase to the maximum level of council tax premiums for second homes, as well as new local tax rules for holiday lets, last month.

The measures are part of a wider commitment to address the issue of second homes and unaffordable housing facing many communities in Wales, as set out in the Co-operation Agreement between the Welsh Government and Plaid Cymru.

As part of the changes, the maximum level at which local authorities can set council tax premiums on second homes and long-term empty properties will be increased to 300%, which will be effective from April 2023.

They are also looking at possible changes to land transaction tax (LTT) to allow local authorities to set a higher, additional rate in areas where they think there are too many second homes.

But Daryl McIntosh said that this would not stop people buying second homes while claiming that they would rent those houses out to avoid the added LTT charge.

“The good news for landlords is that, so far, the Welsh Government has not included the private rented sector in its reform of LTT. So provided you want to let a property long-term, the varied higher rate LTT will not apply,” Daryl McIntosh said.

“However, this does provide a loophole in that the Welsh Government hasn’t said how the proposed variations to LTT will be enforced, leaving the process open so that potentially buyers of second homes could claim to be prospective landlords and avoid any variation on the higher rate altogether.”

‘Upshot’

Daryl McIntosh said that despite extra charges Wales remained a “good place to invest” and that the changes could drive property prices up in other areas.

“This is is likely to push second home and holiday let markets into less touristy areas of the country where their perceived negative impact on local communities is not considered to be such an issue,” he said.

“Perhaps a welcome shift for investors, who might snap up property at the current higher rate before local variations kick in?”

He added that “the upshot is that, while there are changes afoot with the Renting Homes regime, demand for private rented sector property remains high and forthcoming LTT variations shouldn’t put off those looking to invest”.

The Senedd debated the issue of second homes this week, with the Welsh Conservatives saying that the Welsh Government’s actions were a “blunt instrument that’ll end up as a hammer blow to the tourism sector instead”.

“And the key reason for that is the Welsh Government has either been unable or unwilling to make a distinction between second homes and self-catering holiday lets,” Senedd Member Tom Giffard said.

“This means that many normal people across Wales who let out flats, houses and cottages to visitors will be completely unable to meet the new threshold and it will price them out completely of ever being able to afford to offer visitor accommodation to people across Wales and internationally.

“And that isn’t a political argument; that’s something that’ll impact real tourism operators here in Wales.”

But Welsh Government Finance Minister Rebecca Evans said that the aim was to ensure that second home owners “make a fair contribution to the communities in which they have homes or run businesses”.

“This in turn is part of our three-pronged approach to addressing the impact that large numbers of second homes and holiday lets can have on communities and the Welsh language,” she said.

“The views conveyed in the consultation, including from the wider tourism sector, clearly support a change to the criteria for self-catering accommodation to be classified as non-domestic.

“Responses indicated that genuine holiday accommodation businesses would be able to satisfy increased letting thresholds and a wide variety of possible alternatives were suggested.

“Increasing the thresholds will provide a clearer demonstration that the properties concerned are being let regularly and are making a substantial contribution to the local economy.”