Agenda item

Consultation on the level of Council Tax Premium for second homes

To submit a report by the Director of Function (Resources)/Section 151 Officer.


The report of the Director of Function (Resources)/Section 151 Officer setting out the results of a public consultation exercise on the intention to increase the council tax premium on properties periodically occupied (second homes) was presented for the Executive’s consideration.


The Director of Function (Resources) and Section 151 Officer reported that the power to charge the premium came into effect on 1 April, 2017 and the Council initially set the premium at 25%; following consultation in February, 2019 the Council resolved to increase the premium to its current level of 35% from 1 April, 2019. As at 1 September, 2021, 2,670 properties are subject to the 35% premium. At present 10 local authorities in Wales including Anglesey apply the premium, which ranges from 25% (2 authorities), 35% (Anglesey), 50% (5 authorities) and 100% (2 authorities). Although the use to which the revenue generated by the premium is to be put is not specified in the legislation, Welsh Government guidance states that it is intended to be used as a tool to bring long term empty homes back into use and to help local authorities in increasing the supply of affordable housing thereby enhancing the sustainability of local communities.


The Executive in December, 2020 resolved to undertake a full consultation on its intention to increase the premium of second homes to 50%; the consultation opened on 14 June, 2021 and closed on 6 August, 2021 and produced a total of 1,434 responses. Information about the location of the respondents and whether they were owners of a second home, a self-catering units or council tax payers only is provided in section 2 of the report (paragraphs 2.3 and 2.4) as is information about the views expressed with regard to the impact of second homes on local communities, the local economy and the Welsh language (paragraphs 2.5 and 2.6) as well as the level of the premium and whether or not it should be increased and if so by how much (paragraphs 2.7 and 2.8). The response as regards people’s views about how the income from the premium should be used is outlined in paragraph 2.9. A summary of all the general points raised in the consultation is provided in Table 3 of the report.


The majority of Anglesey residents who responded to the consultation were of the opinion that the current number of second homes on the Island is having a detrimental effect on local communities and the Welsh language and to a lesser extent, on the local economy. They were also of the opinion that the high number of second homes is pushing up house prices and making them unaffordable for local people. The majority of people who responded to the consultation supported an increase in the premium on second homes with 45% in favour of increasing the premium to 100%.The majority of respondents want to see the Council use any additional funds generated to help local people buy or rent their first home.


Section 3 of the report sets out the financial impact pf increasing the premium whilst sections 4 and 5 outline the benefits and risks involved respectively. Raising the premium will generate additional income for the Council, but the level will be dependent on how second home owners react to the increase. The level of extra income generated may be lower if second home owners use the existing loopholes to avoid paying the increased premium (paragraph 3.8 refers). There is also a risk that a steep rise in the premium will result in a large number of properties being re-designated as self-catering accommodation and being subject to Non Domestic rates rather than Council Tax (paragraph 1.6 outlines the process for re-designating properties via the Valuation Office Agency). This would result in a one off drop in Council Tax income in 2022/23 but would be offset by an increase in Welsh Government funding in 2023/24 due to how the funding mechanism operates (paragraph 3.10 explains).Further, raising the premium significantly allows the Council to respond to welsh Government’s comments about the Council not fully utilising the powers it has been given to tackle the issue and would give it greater leverage on Welsh Government to respond to close loopholes and to change planning laws and policies. More administrative resources would be needed if the premium was increased to deal with the resulting increased workload and also to allow more resources to be directed towards identifying those who are avoiding paying the premium.


Councillor Robin Williams, Portfolio Member for Finance giving his own perspective said that he saw the Council Tax premium as something of a blunt instrument and had real doubts as to its effectiveness in tackling the second homes issue especially as an increasing number of second home owners have been taking advantage of existing loopholes to reclassify their properties as businesses that are not liable for Council Tax but obtain relief from business rates as well. He thought that more radical steps have to be taken by Welsh Government to address the issue which need not affect tourism which is an important and valued industry in Anglesey, but which would stop the growth of second homes which is having a detrimental impact on communities on the Island and on the Welsh language and culture, and is a pattern that is also being repeated in areas not strong on tourism through the proliferation of AirBnbs.  It was his view that Welsh Government needs to consider amending planning rules or allow local planning authorities to do so, so that anyone wanting to change a property that is owned or is for rent to a holiday home would have to apply for planning permission for change of use. Other options that could also be considered include levying taxes on homes used as businesses or on the income therefrom, charging VAT on properties let as holiday homes or introducing  a tourism/resort tax in Wales in the same way as is levied in many other countries. The power given to local authorities in Wales to charge a Council Tax premium on second homes is not having the desired effect in terms of reducing the number of second homes and there is no evidence available at present to show that raising the premium level to 100% is effective in those local authority areas that have chosen to do so; it is likely that more second homes will be converted to business use and avoid paying the premium (and Council Tax) altogether. The Portfolio Member for Finance said that he favoured and was therefore advocating a gradual approach that would see the level of the premium being increased incrementally as is reflected in the proposals within the report. 


Councillor Alun Mummery speaking  as Portfolio Member for Housing and Supporting Communities said that he too supported raising the Council Tax premium to 50% with the intention that it be further raised to 75% and to 100% in subsequent years and was basing his comments on many discussions he had been party to on this topic over time. He likened Anglesey as one of the six west facing local authorities to King Canute unsuccessfully trying to stem the tide which has recently become a tsunami and going round in circles trying to find a solution to the matter when the answers lie with Welsh Government. Local authorities in Wales were given the power to raise a Council Tax premium on second homes by up to 100% back in 2014 but the loophole that allows second homeowners to re-designate their properties for business purposes and transfer to the business rates system was not closed at the same time. Although the Welsh Government’s Minister for Housing and Local Government made a statement on 6 July, 2021 that she intended to take heed of the 12 recommendations made by Dr Simon Brooks in his report on second homes with a “three pronged attack” and would publish a Welsh Language Community Housing Plan this autumn, these have yet to materialise. The Isle of Anglesey County Council first levied a premium of 25% on second homes in 2017 thereafter raising it to 35% in 2019, and it is one of only three authorities in Wales that levies a 100% premium on empty homes. The Council’s Housing Service has benefited to the amount of £350k per annum from the premium which has helped provide first time buyers with grants of which there were 37 successful applications last year, and also to support housing renewal. This as much as anything had influenced his decision not to support increasing the premium to 100% straightaway since that could prompt more second homeowners  to seek to avoid paying it and if Welsh Government does not deliver on its promises for action, it would leave the Council with nothing to fall back on. House prices nationally have increased steeply putting home ownership out of reach for many young people; tackling the issue therefore requires a national policy rather than piecemeal actions.


Councillor R. Meirion Jones, Portfolio Member for Education, Libraries, Youth and Culture said that he initially supported raising the level of the premium to 100% because he thought it was the right thing to do and because Welsh Government has been reluctant to acknowledge the issue of second homes as a problem. Although this has since been recognised there has been very little movement on the matter and he urged Welsh Government to take steps especially with regard to stopping the practice of flipping whereby second homes are re-designated as holiday lets and transfer to business rates claiming business rates relief in the process. He emphasised that it was important to note that the proposals presented as part of the report to today’s meeting are a compromise reflecting the differing views expressed as part of the consultation.


In thanking the Officer for the report and the Portfolio Members for their viewpoints the Chair highlighted that the Council has on previous occasions made representations to Welsh Government on this matter.


It was resolved –


·        To recommend to the Council that the premium on properties that are substantially furnished but which are not deemed as the taxpayer’s sole or main residence (second homes) is increased to 50% from 1 April, 2022/23.

·        That taxpayers who are currently identified as being subject to the premium are formally notified of the Council’s intention to increase the premium to 50% as soon as possible, in order to allow them to make alternative arrangements if they do not wish to pay the increased premium.

·        That the Executive reaffirms its intention to :-


·           Increase the premium on properties that are substantially furnished but which are not deemed as the taxpayer’s sole or main residence (second homes) to 75% from April, 2023 and 100% from April, 2024.

·           Continue to put pressure on the Welsh Government to do all it can to allow the Council to control the number of second homes on the Island.

·           Continue to request Welsh Government to change the current legislation so as to ensure that the owners of second homes make a suitable tax contribution, either by means of Council Tax or through Business rates.

·        That funding is released from the additional income generated to employ 2 additional members of staff in the Council Tax team from January 2022 to deal with increased workload (appeals, recovery etc.) and to allow the team to be more proactive in identifying tax avoidance. Based on the 2021/22 pay scales, a sum of £65k would be sufficient to meet the cost of pay and the associated costs.

·        That the Executive determine how to utilise the additional income and that the proposals are included as part of the 2022/23 revenue budget proposals with the majority of the additional income being directed to funding schemes to help local people purchase their own home and to promote the local economy.


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