Council tax blow for second-home owners

Published by: The Telegraph

Owners of second homes are to lose council tax discounts in a major shake-up to be announced by ministers. The package of measures, to be unveiled by Eric Pickles, the Communities Secretary, would be the first major changes to the tax since it was introduced in 1993, in the wake of the failed poll tax.

Local authorities will be told they can abolish the rebate, which can mean council tax on second homes is as much as 50 per cent lower than for main residences. Ministers say the proposal will benefit hard-pressed middle-income families - but it will be unpopular with second-home owners. It will form the centrepiece of a series reforms which ministers say if adopted, would allow a cut in council tax bills for most people.

The bill for a Band D property, whose average this year is £1,196, could be reduced by around £20 according to coalition sources. Council tax bills have already been frozen this year and will be again from next April. The package of measures, to be unveiled by Eric Pickles, the Communities Secretary, would be the first major changes to the tax since it was introduced in 1993, in the wake of the failed poll tax.

It includes an end to discounts on empty properties, which can be up to 100 per cent, in an attempt to increase the available housing stock. Mr Pickles will also pledge to review the current system which sees tax inspectors treating "granny flats" as distinct properties, meaning families who house a relative in an annex face two separate council tax bills. Councils will, furthermore, be encouraged to offer discounts to householders who pay bills via the internet while ministers propose letting council tax payers pay their bills over 12 months, rather than over 10 months as at present.

They will also cancel a complex and unpopular planned tax increase on homes with "rent a roof" solar panels, which had faced the same levels of tax as businesses which install the panels. Mr Pickles's statement is expected to confirm that there are no plans for an expensive total revaulation of all 21million homes in England - with sources saying this effectively rules out attempts by Liberal Democrat ministers to impose a "mansion tax" on owners of the highest-value properties.

Labour had worked on a revaluation but never implemented it. One which was implemented in Wales in 2005 was hugely unpopular as a third of homes were placed in a higher band.

Lib Dems are likely, however, to welcome the main thrust of Mr Pickles's proposals, which will give local authorities the "flexibility" to reduce or remove entirely the current system of tax relief on second homes, many of which are kept as holiday lets. Discounts can be worth hundreds of pounds a year. 

Such a move was called for earlier this year by Shelter, the homeless charity, which claimed it would save £42million a year. It was also proposed by Tim Farron, the Lib Dem president whose Westmorland and Lonsdale constituency has more than 3,200 second homes, last year.

Four out five councils are understood currently to offer the minimum 10 per cent discount - suggesting they would welcome the chance to abolish the relief entirely - while one on five offer more, up to a maximum of 50 per cent. 

In the last 20 years, second-home ownership has grown dramatically, particularly in coastal areas such as Cornwall, Cumbria and Norfolk, where some claim it pushes up property prices and makes it harder for local people to get on the property ladder. In 2009, there were a total of 245,384 second homes in Britain, according to a survey by Knight Frank, the estate agents.

Mr Pickles is also targeting the up-to-100 per cent discounts on empty properties. Sources emphasise, however, there are no plans to change the rules on relief for "exceptional circumstances" such as homes left empty because someone has died, been moved to hospital or a care home or has moved in with someone else to be a carer.

Instead, ministers are seeking new powers to tax banks and other lenders who repossess homes, forcing occupiers to leave, and then keep the properties empty. They are also encouraging councils to do more to get council tax payers to pay bills online rather than by post in other "hard copy" formats. Mr Pickles said last night: "Under Labour, council tax went through the roof. This Government has scrapped Labour's council tax revaluation and is helping freeze council tax for two years.

"I want to do more to help everyday families with their cost of living, and protect family homes from tax increases. "By removing the subsidised tax breaks for empty homes and second homes, we can cut £20 a year off families' council tax bills by treating everyone equally and fairly. "Councils should make it easier to pay bills, and offer the same discounts for electronic billing that other companies offer as standard – this will cut paperwork and help reduce tax bills."

The current council tax "freeze", which came in this year, will be extended to cover next year at least, after an announcement by George Osborne, the Chancellor, at this month's Conservative Party Conference in Manchester. Mr Osborne said he would use an £805 million "dividend" from a Whitehall under-spend to pay for the freeze, saving an average family £72 a year.

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