Business rate relief for second home owners is madness – and has to stop

The view from Abersoch. Picture by Cleavers (CC BY-ND 2.0)

Iwan Williams

A few months ago, within a couple of weeks of each other, both the house next door to ours, and the one next to it were purchased as holiday homes.

The moralities of second home ownership, the impact on local housing markets and in particular young peoples’ prospects for home ownership have of course been well documented by others, so I will not repeat those arguments here.

Over the last few days, however, posters have appeared in the windows of both houses advertising them as holiday rentals.

This bothers me from a planning perspective. Converting your property into business premises is a significant change of use, and is not what the property was originally built for.

If I wanted to convert my home into a shop, I would need to go through a stringent planning process, and would most likely fail to obtain permission.

Why is it so easy then to change a home into a holiday letting business?

In my view this should be a matter for planning authorities to consider whether the conversion to a holiday home/let is appropriate or justified.

Here in Morfa Bychan (by Porthmadog) a quick look on Google maps will show you that the village itself is dwarfed by numerous caravan and holiday parks of varying types and size.

These employ local people, and the contribution made by visiting tourists is a valued part of the local economy.

Given the ample range of holiday accommodation already available locally, there is little justification in converting homes into holiday letting businesses.

Free

Another question bothered me as well. Why would you buy your (presumably) dream holiday home on the Welsh Coast, redecorate it, install a new kitchen and bathroom, just to rent it out to complete strangers for much of the year?

Having done a little research, it appears that holiday home owners that classify their properties as a business as opposed to a domestic dwelling can enjoy significant financial benefits.

All they need is to rent the property for 10 weeks a year, and have it available for rental for 20 weeks, and they can re-classify the property as a business.

There appear to be very few rules in place to police this process, or prevent abuse by second homeowners.

What the reclassification means is that the owner is no longer liable for domestic Council Tax (or the 50% premium applied to second homes in Gwynedd). They are instead, liable for business rates.

However, the Welsh Government offers 100% business rate relief for all small business premises with a rateable value under £6000, with a tapered discount up to £12,000.

In practice, this means that these second homeowners do not make any direct contribution to services provided by local councils. They get their refuse and recycling collected, roads maintained and gritted etc, all for free.

While my family and I face ever increasing Council Tax bills (currently around £160 monthly), the owners of our neighbouring properties may not have to contribute a single penny in the near future.

Uproar

Indeed, many second home-owners in the area already benefit from this Welsh Government Policy. Based on the latest government data available (I understand to be from 2017), there are 121 properties in the Porthmadog area (LL49 postcode) registered as a holiday rental business.

The vast majority of these have a rateable value under £6000 and are therefore not liable to pay any business rates, and of course, no Council Tax either. See here.

If we assume an average Council Tax banding of ‘D’, and apply the 50% second home premium, Gwynedd Council is losing out on around £300k of Council Tax revenue from this single postcode area alone.

I shudder to think at the total revenue being lost if one was to look at areas such as Abersoch, Morfa Nefyn and of course, many other parts of rural and coastal Wales.

Ultimately, this impacts on local services. Last year, the Council detailed plans to close all 39 youth clubs to save £270k. The uproar locally granted the clubs a reprieve for now, but the cuts will no doubt return at some point.

Our local primary school cannot afford the £40k or so required to develop an outdoor play area for its youngest pupils – a necessary part of the Welsh Government’s Foundation Phase Curriculum.

They have sought grants from the local grocery superstore, and volunteer parents are arranging fundraising activities.

Unintended

I genuinely cannot think of any other country that would prioritise significant tax breaks to second home owners domiciled in another country, over the provision of basic services for our children and young people.

It’s madness. Utter madness. And must stop.

I suspect though that this situation is an unforeseen and unintended consequence of what is an otherwise progressive policy, aimed at supporting the small businesses and shops that are the backbone of many of our communities.

The Government must step in to amend its policy, to ensure that second home owners contribute their fair share towards local services. The current situation is neither sustainable nor equitable, and disproportionately impacts local authorities such as Gwynedd, Ynys Mon, Conwy and Ceredigion.

Plaid AM Rhun ap Iorwerth has already raised this in the Senedd, but then First Minister Carwyn Jones either did not understand the issue, or chose to ignore the problem. The Senedd exchange can be seen here.

To be clear, the issue is not with the process or administration of this Government policy. The problem lies with the policy itself.

As noted above, I believe this to be an innocent, unintended consequence of otherwise positive policy.

But given the issues highlighted, the Government must take action and exclude holiday homes from the business rate relief.

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