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South Hams stops tax loophole

Monday, 17 January 2022 07:27

By Philip Churm, local democracy reporter

South Hams Council

Second homeowners to pay council tax

South Hams councillors say they are delighted at government plans to close a controversial tax loophole which allowed second home owners to avoid paying business rates or council tax on their properties.

South Hams District Council has waged a long campaign to urge ministers to change the law.   

On Friday (14 January) the government announced changes that would close this loophole but protect genuine holiday lets and benefit popular holiday destinations, including those in the South Hams.

Currently, owners of second homes can avoid paying council tax and access small business rates relief by simply saying they will rent the property to holidaymakers. 

But concerns have been raised that many never actually let their homes and leave them empty – unfairly benefiting from the tax break.

The change comes into force in April 2023 and will see second homeowners paying council tax if they cannot show they are genuinely renting out their properties on a commercial basis.

In 2020, council leader Judy Pearce (Conservative, Salcombe and Thurlestone) gave evidence on this issues to the treasury select committee. 

In response to the announcement by Secretary of State for Levelling Up, Michael Gove, Ms Pearce said: “This is excellent news as a result of a sustained campaign by South Hams District Council, Anthony Mangnall MP and myself to get this loophole in the business rates system closed. This is important for community cohesion.

“Second homeowners should be paying into the local community unless they are genuinely running a letting business. Services such as highways, the fire service and the police, which can equally well be used or needed by holidaymakers, will benefit, as will the general income of the district and county councils. We welcome all visitors, but hard-pressed local residents should not have to subsidise services for them.”

Anthony Mangnall MP added: “After two years of campaigning with Cllr Judy Pearce, leader of South Hams District Council, it is welcome news that the government has taken this step. 

“South Devon has one of the highest concentration of second homes in the country. 

“This announced change will help to stop people utilising an unforeseen loophole while also ensuring that they pay their fair share. 

“Both the chancellor and Michael Gove have listened carefully to our needs and I hope this will be the first step of many to help improve accommodation issues in the south west and beyond.”

South Hams District Council declared a housing crisis last September, along with a 12-point action plan which included a campaign to close the tax loophole. 

The council hopes that it will make revenue collection in the areas fairer while helping to provide longer-term rentals. 

This would help to ease the chronic shortage of long-term rental accommodation at an affordable rate, making it easier for local families to remain in the community.

Under the new rules, holiday lets must be rented out for a minimum of 70 days a year to qualify for business rates. Holiday-let owners will have to provide evidence such as the website or brochure used to advertise the property, letting details and receipts. Properties will also have to be available to be rented out for 140 days a year to qualify for this relief.

The council currently has just under 1,800 business-rated properties that are self-catering holiday lets.

The measures were introduced, in part, to help local people access property. 

The average salary in South Hams in 2020 was around £30,000 but many houses in towns such as Salcombe sell for more than £750,000 – 25 times the local average salary.

Small business rate relief was introduced to support small businesses, village halls and local shops. But councillors said the rules had been taken advantage of, allowing people to avoid paying for the local services they were using.

In other measures aimed at tackling the housing crisis, last July South Hams District Council agreed that all new open market housing will only be supported where there is a Section 106 agreement to ensure its occupancy as a principal residence.

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