Could changes to tax rules for second home owners ease the housing crisis?

South Hams District Council has fought a long and arduous campaign to urge the Government to close a tax loophole which allows second home owners to avoid paying any business rates or council tax on their properties. 

Cllr Judy Pearce, Leader of South Hams District Council explains what this means for local people and how it could help improve accommodation issues in the South Hams:

"Last month, the Government announced it was closing the tax loophole which allows second homeowners to avoid paying any business rates or council tax on their properties. After two-years campaigning for this change alongside our local MP, Anthony Mangnall MP, it is excellent news that we have made the situation fairer. 

"Second home owners who falsely claim to let out their home just to avoid paying any council tax or business rates will no longer be able to do so. Services such as the fire service, the police, and highways which can equally well be used or needed by holiday makers, will benefit, as will the general income of the District and County Councils. It means our residents quite rightly won’t be subsidising those who don’t pay their fair share. And I hope it will make our communities stronger by going some way to help to close the ‘them and us’ divide that has emerged amongst a backdrop of spiralling housing costs.

Affordable housing in South Devon

"Golden beaches, superyachts and celebrities make the picture-postcard haven of South Devon a natural draw and we welcome all visitors. But our district’s appeal to those looking to escape to rural and seaside bliss really is a double-edged sword. On the one hand our visitors are crucial to our local economy; spending money in our independent shops, cafes and farmers’ markets and helping our towns to thrive. On the other hand, we have sky-rocketing average house prices now at 25 times the average local salary and a chronic shortage of long-term lets leading to exceptionally high local rental prices. The numbers are stark. A recent new development of affordable rent homes in Kingsbridge had 71 applicants per property. The reality is local people with good jobs in our schools and hospitals now simply cannot afford to pay open market rental prices here.

"Following the pandemic and seismic shift towards staycations and the exodus from the cities, the housing situation in South Devon has reached crisis point. According to The Property Daily, Salcombe is the UKs most popular second home location[i] with 57%[ii] of homes in the town classed as a second home. Average house prices in Salcombe exceed £750,000 with many selling for over £1 million. However salaries in the area are lower than the national average at around £30,000 a year, making it increasingly difficult for young people to get onto the property ladder.

Tackling the local housing crisis

"In September we declared a Housing Crisis and devised a 12-point action plan. Closing the business rates loophole was one of the areas where we committed to make a change. We know there is still so much to be done but we're determined to put the resources and facilities in place that will make a difference. We know the cost of housing is of huge concern to many residents. We have pledged to take action now to find as many solutions as possible to solve this huge problem and make it easier for local families to remain in the communities they love.

"Currently, people who own second homes in England can avoid paying council tax and access small business rates relief by declaring an intention to let the property out to holidaymakers. The change, which will come into effect from April 2023, will see second homeowners forced to pay council tax if they cannot show they are genuinely renting out their properties on a commercial basis.

Tax rules for second home owners

"Under the new rules, owners will have to evidence lettings of a minimum of 70 days a year to qualify for business rates. We’re hoping this may also translate into us seeing more long-term rental properties becoming available as owners switch away from short-term lets.

"We know that not every second home owner exploited the previous situation and many run genuine lettings businesses. However, closing the tax loophole will now stop those who did take advantage and failed to pay their way.  From next year, we can be confident everyone will be paying their fair share for services to help keep our communities strong. More must still be done, but we are campaigning for solutions to the now huge unregulated market in short-term lets. I hope this will be the first step of many to help improve accommodation issues in the South Hams, the South West and beyond."