Second home owners could lose out on their council tax discount as a result of proposals suggested by the Liberal Democrats recently. The proposals could potentially raise up to £50 million pounds per year of desperately needed monies for cash-strapped local authorities as the coalition cutbacks begin to bite. This is bad news for the 246,000 registered second homeowners in the England. Of this number over 40% are in the council tax band D. At present they receive discounts of between 10% and 50% on their annual council tax bills. In Wales second home owners do not receive these discounts and already have to pay full council tax.
For the many investors who have shied away from equities and other investments and have chosen to bank on rising property prices, this potential increase represents an additional cost of potentially hundreds of pounds a year. Owners of second homes and holiday homes have already seen increases in the cost utilities bills and of buildings insurance for second homes increase (due to the impact of global warming on insurance premiums generally). Freezing weather and flooding has caused huge increases in the number of home insurance claims over the past few years (which has led insurance markets to push premiums upwards year upon year). To compound the worries the general rise in income and property related taxation is prompting many to consider whether or not buying a second home for investment purposes really is as attractive as it was during the last decade.
The proposal to abolish the discounts on council tax bills has come from the Liberal Democrats who believe it is unfair that villagers living in rural communities cannot afford to purchase homes built in the village (that have been snapped up by owners living in inner cities). The Liberal Democrats claim that poorer communities are subsidising second homeowners discounts and the shortfall means that there is a black hole in the quality and amount of local services as a result. Mr Farron (Liberal Democrat), whose Cumbrian constituency has more than 3,800 second homes, claims their owners are being bankrolled by poorer local residents. He said: “People living on council estates, maybe working on the minimum wage, are subsidising the council tax of a barrister from Manchester with a second home in the countryside. We are having to put up taxes, scrap certain benefits… it is a case of social justice.”
Local Government Minister, Greg Clark, has pledged a review of second home tax discounts from this January following pressure from Liberal Democrats. A review of council powers by the Department for Communities and Local Government, due in the new year, is to consider giving councils the power to charge second-home owners the full rate of council tax. Ministers have promised to consider abolishing the tax break on the grounds that property owners wealthy enough to afford second homes should be able to pay more.
The political pressure is mounting in light of the 11% cuts required by Local Government next year to find ways to protect front line services. In addition there is pressure from groups such as the National Housing Federation who claim that Families are being forced out of their local areas as more buyers seek second homes in rural location. In a statement, it’s chief executive David Orr said: “Some areas of the English countryside have seen a huge rise in the number of properties being bought as holiday homes, which has pushed up prices beyond the level most local people can afford. If families and young people are priced out of their local villages it can have a hugely damaging impact on community life, with village shops, schools and pubs closing in alarming numbers as a result.”