On Wednesday 9th March the Welsh Government held a consultation on local taxes for second homes and self-catering accommodations. It aimed to assess how the current local tax regime was affecting the private rental sector (PRS) in Wales in regards to second homes and self-catering accommodation. The consultation involved 974 respondents from private individuals to industry bodies to local authorities and councillors. Here we will go over what was discussed in this consultation and what suggestions were made by those in the PRS.
One of the questions asked in the consultation was how the distinction between second homes and short-term lets can be made clear. A common response from the public was that it would be difficult for local councils to identify second homes, especially when landlords used intermittent holidays to fill void periods. This could unnecessarily lead to PRS landlords being caught out with higher council tax premiums. To solve this it was suggested that landlords registering with Rent Smart Wales be used as an indicator that a property is for let as a PRS property.
Questions were also asked about the benefits of a national framework that provides regional and local flexibility in regard to second homes. Specifically, it was asked about the balance between the tourism economy and second homes effects as well as, the extent of government intervention in the sector. The responses said that this question should be flipped to ask whether the policy will actually achieve its aims of providing enough homes. Figures from the NRLA suggest that Wales needs to see an 8,800 year-on-year increase in the number of private rental dwellings to meet current housing targets. If these tax changes started to deter investment in the PRS then it would make it impossible to achieve this target.
In terms of the actual tax changes, the questions focused on what effects the maximum 300% premium will have on second homes ownership and its potential to fund affordable homes. One suggestion was for the council tax premiums to top-up the Local Housing Allowance (LHA). This would help the 70% of benefits recipients in Wales whose housing allowance doesn’t cover their entire rent. Tim Thomas, the policy officer for the NRLA also suggested a 100% tax discount for one month on all empty properties to prevent the tax premiums being levied when a property is between tenancies and also cuts down on bureaucracy.
The consultation’s final major area of question was about the planning and regulations changes for second homes in Wales. Specifically, the consultation asked how the public viewed evidence that properties in the PRS are moving towards being short-term lets. The NRLA again found that Wales has the third-highest proportion of full dwellings being listed on Airbnb in the UK with 3.8% after London and Scotland. Its Capital Economic report from 2018 stated that short-term rentals have “been an attractive alternative over long-term lettings for many landlords who favour increased flexibility and have been put off by more burdensome regulations in the private rented sector. Without long-term tenants, landlords can more easily sell up and leave.” BVA-BDRC also noted that there had been a 70% increase in the demand for private rentals in Wales while only 11% of landlords are planning on increasing their number of properties and 37% said they planned on decreasing them.
Here is what our Managing Director, Douglas Haig, had to say about the second homes consultation:
It’s incredibly important people can live and work in the areas they grow up in, but the conversations around this legislation show how there are serious potentials for unintended consequences. Landlords in Wales have been hit by multiple areas of legislation and increased taxation which is leading to a huge shortage of rental properties, particularly in the areas in question. Further changes are likely to create greater shortage which will detriment those this discussion is trying to protect.”
Overall, this consultation has highlighted what concerns the property industry has towards local tax changes for second homes. Industry figures including Douglas Haig of the NRLA and MD of The Seraph Group have made multiple suggestions on how these reforms can be better implemented. The focus of these was to not unfairly tax landlords trying to get their properties on the rental market but needed time. There was also a focus on the need for the money raised from these taxes to be ring-fenced for local spending and directed at those most in need of affordable housing.
Whether you are a landlord with a managed property, or looking to convert a holiday let to a residential letting property, we can help. If you are looking to better understand how these changes can affect your properties and how we can help improve your portfolio, in light of these changes please contact us here.