Raise tax on second homes, say MPs

14 Jan 2022

MPs argued that holiday let owners should pay council tax on their properties and second home owners should pay a council tax surcharge, during a debate on the impact of second homes and holiday lets in rural communities. A Conservative MP suggested a ‘wealth tax’ on UK property with overseas owners.

Lib Dem Cumbrian MP Tim Farron (photographed below courtesy of Parliament UK) led the debate, which took place in Westminster Hall, saying the ‘housing crisis’ that has faced communities in rural Britain for decades has rapidly become a ‘catastrophe’ during the two years of the pandemic. Farron is concerned about ‘erosion’ in the number of properties in Cumbria that are available and affordable for local people to buy or rent. Around 80 per cent of all house sales in the county during the past two years have been in the second home market.

Arguing that the solution is essentially about taxation and planning law, Farron made suggestions including:

  • Follow the lead of the Welsh Government and give councils the power to increase council tax by up to 100 per cent on second homes in the worst-affected communities.
  • Force all holiday let owners to pay council tax (as they can avoid paying anything at all if they are deemed a small business).
  • Make second homes and holiday lets new and separate categories of planning use.
  • Provide targeted, ringfenced finance so that planning departments have the resources to police this new rule effectively.

Conservative Bob Seely intervened to say a group of MPs have written to the Secretary of State with over two dozen ideas for the upcoming housing and planning Bill, including recommendations, and some options on second home ownership. Labour’s Daniel Zeichner suggested a statutory registrations scheme for all accommodation providers to manage the impact of Airbnb and the sharing economy.

There was general consensus on Farron’s proposals among the politicians in attendance at this debate.

Conservative Selaine Saxby remarked that, although tourism is a major part of her North Devon economy, the lack of housing available for permanent residential use is starting to have a major impact on the lives of her constituents, as well as on local businesses and public services. A proliferation of short-term holiday lets changes the character of a neighbourhood and can increase antisocial behaviour and noise nuisance, primarily because there is so little regulation of short-term holiday lets, she said. Saxby wants the Government to ‘level the playing field’ between the short-term and the long-term rental markets through the various current tax inequalities, to ensure that the short-term holiday let market is better regulated and that a change of use is required to convert properties from primary residence to holiday lets.

Another Conservative, Kevin Hollinrake, observed that the Government must believe taxation is a useful tool in this policy area because there is already a three per cent stamp duty surcharge for second homes. We should have a conversation about whether we should have a council tax surcharge as well, he said. Hollinrake, who recently joined the Commons Treasury Committee, does not see a reason why we should not seek to tax non-resident overseas owners even more heavily than with a 100 per cent increase in council tax. He said: “Roughly, if we applied a one per cent wealth tax on UK properties - this is only for overseas owners, not UK residents - it would raise £4 billion to £5 billion a year. There would still be an incentive for those people to invest their money in the UK… but the reality is that this would make it a fair and level playing field.” The £4 billion or £5 billion a year should go into the First Homes programme, he suggests.

Rachael Maskell, Labour, said developers are building units for investors, which ‘are perfect for short-term breaks but hopeless for local families’. “We need to fix local taxation,” she argued. “Business rates do not work here, as we all know, so on top of council tax, a council tax levy should be paid by people who have the privilege of owning a second property for holiday lets. People renting still use local services and need their bins collecting.” She says a ‘residence test’ in planning rules and scrapping the mortgage tax relief on holiday lets is ‘absolutely essential, as is looking at how stamp duty can be even better used as a disincentive for second home ownership’. Limit the time for which holiday homes can be let, too.

Labour’s Shadow Housing Minister Matthew Pennycook cited Hamptons International which used Companies House data to show that the rate at which holiday let companies are being set up has more than doubled over the pandemic, with the vast majority of those incorporating being individuals owning only one mortgaged property, rather than large corporations holding multiple holiday homes. Pennycook went on to say council tax records are likely to significantly undercount second homes. He suggests the Government could provide local authorities with powers to introduce licensing regimes for second homes and short-term lets, and for giving them even greater discretion over their council tax regimes—perhaps allowing local authorities, as Labour has done in Wales, to levy a premium or surcharge on second homes and long-term empty properties if they believe that that is required in their locality.

Lib Dem Wendy Chamberlain believes the Government should use fiscal policy to encourage the sale of properties as primary residences. Her party has called for the ‘holiday let tax loophole’ to be closed and for mortgage tax relief to be removed from holiday lets. She said that just as important as tangible policy change is the need for a consistent approach between devolved Administrations and the Government.

The SNP’s housing spokesperson Patricia Gibson remarked that 25 of Scotland’s 32 local authorities have already removed the 10 per cent council tax discount on second homes. DUP’s Jim Shannon wants better scrutiny with regard to planning, and local residents should be given a platform to air their concerns.

Speaking for the Government, housing minister Chris Pincher promised to look at Farron’s proposals.

Pincher said, since 2013, local authorities have been able to levy 100 per cent of council tax on second homes, where the people who own them do not necessarily use the local services that they might, but through the council tax have to contribute to them; about 96 per cent of local authorities make use of that. Where homes are empty for a period of time, they can levy even more significant council tax surcharges, he said. That is also why we have committed to close the loophole in the business rate system that Pennycook referred to, said Pincher, to ensure that letters have to reach a letting threshold before they can benefit from business rate relief, and ‘we will introduce our proposals to close that loophole as soon as we can’. There is already a stamp duty surcharge for foreign purchasers of property.

The minister also confirmed that the Government proposes to consult on the introduction of a tourist accommodation registration scheme in England so that it can build an understanding of the evidence and the issues that second homes present (there will be a consultation later this year). While changing planning law so as to make second homes and holiday lets a separate category in planning use has some attractions, it also has some significant drawbacks, he said. Use classes apply nationally in all cases, irrespective of whether one lives in a high tourism area. Therefore, a new use class would affect second homes and therefore potentially restrict the freedoms of homeowners, wherever they live, regardless of whether it is a high-use tourist area.

The transcript of the 6 January 2022 debate is here.

By Hamant Verma, CIOT Senior External Relations Officer

(Since this debate, the Government announced on 14 January 2022 that owners of second homes who falsely claim properties are holiday lets will be forced to pay more tax under new proposals. Under the rules, holiday lets will have to be rented out for at least 70 days a year to qualify for business rates. More here.)