Rules brought in to limit the amount of second homes in Wales are unfairly hitting businesses owners in Wales, according to the Wales Tourism Alliance. New occupancy rules for businesses mean that they need to be occupied for at least 50% of the year to prevent from being classed as second homes and being subject to premium council tax rates.
Under the coalition agreement with Plaid Cymru the Welsh Government introduced legislation that allowed councils to massively raise council tax on second homes. Welsh Government is taking action due to community pressure to mitigate the impact of second homes on rural and coastal communities.
Second homes have a massive impact on Welsh communities in some parts of Wales. If they are in great numbers they can force local people to move elsewhere due to price inflation, erode the foundations of the Welsh language and leave schools under subscribed.
Read more: Adam Price blames the media for Plaid's failure to make gains under his leadership
Many people with second homes would previously use a "loophole" in the legislation which meant that if they classed their second home as business they could pay business rates instead of council tax which was often massively cheaper. However, the new rules upped the amount of time that a property must be occupied to qualify as a business to 182 days. Given that the holiday season in Wales is quite short over the summer period this has put some businesses under pressure.
Owners that are struggling to meet stiff new occupancy rules say they could face hefty council tax premiums if they fall ill or are forced to close for bad weather. Moreover, holiday properties could start deteriorating as fearful owners cut corners to avoid falling foul of the new rules, it is claimed. Already, a business in Eryri (Snowdonia) has cancelled a £12,000 refurbishment project after deciding it couldn’t afford to close for a month over winter.
This week the Welsh Government announced it would not be allowing any further exemptions for holiday lets that do not meet new minimum 182-day occupancy conditions. The current exemptions are for properties that are restricted by planning conditions.
Finest Retreats, a large holiday let operator, hit out at the decision to not add additional exemptions. They claimed First Minister Mark Drakeford and Plaid Cymru’s Adam Price owned second homes that would benefit from the current exemptions. Mr Drakeford has a chalet on a holiday park while Mr Price, as an MS for Carmarthen East and Dinefwr, has a home in his constituency and a property in Cardiff for when he is at the Senedd.
Failure to achieve the threshold or come under the exemptions will make owners liable to council tax instead of non-domestic rates. Depending on location, some will also be levied a premium: in Gwynedd, the surcharge is 150% – effectively a 250% council tax.
Richard Bond, founder of Finest Retreats, fears the decision will leave some owners facing “serious financial hardship” if their accommodation is temporarily shut for illness or other reasons. He said the lack of exemptions granted by Cardiff was “exceptionally disappointing and discouraging”.
However, the Welsh Government confirmed that local authorities have discretionary powers to reduce - or remove - the requirement to pay a premium in the event that the new 182-day thresholds are not met. The standard rate of council tax could also be reduced or removed.
Mr Bond claimed 15%-20% of holiday lets in Wales currently hover around the 182-night threshold. “They could easily be pulled into proposed council tax premiums if they simply have a couple of cancellations, the weather is unseasonably bad or illness prevents them from hosting. In line with our own research, this could see a number of holiday let owners exit the market, which would have a detrimental impact on the local economy and the Welsh tourism sector.”
The Wales Tourism Alliance described this week’s decision by finance minister Rebecca Evans not to grant further exemptions as “very disappointing”. In consultations, a majority of respondents lobbied for a series of exceptions. These included:
- Farm diversifications
- Registered charities providing respite for carers
- Properties within the curtilage of the owner’s main residence
- Owners who donate nights for fundraisers
- Holiday lets run by local or Welsh-speaking owners
Only one “minor point of technical clarity” was agreed – to remove the reference to “short-term” in draft legislation. This will ensure that properties which don't have a length of time specified in their holiday let planning conditions cannot be charged premium council tax.
Otherwise, the WTA fears the lack of exemptions shows the Welsh Government has yet to grasp the difference between professional holiday let businesses and second homes. “Where is the differentiation between second homes and resident-run local businesses that is attempting to make a living from those properties that are quite patently unsuitable for use as a primary residence?” said the Alliance. “Both will be punished in the same way.”
In a OnePoll survey commissioned by Finest Retreats last year, almost three-quarters of holiday let owners were said to be considering selling up because of regulatory and financial threats. This has yet to be borne out but there is plenty of anecdotal evidence that owners are weighing up their options. Last year a survey of holiday rentals rated the Gwynedd slate town of Blaenau Ffestiniog as one of the best in Britain for Airbnb accommodation.
Were an exodus to materialise, this would have an impact on wider communities, said Mr Bond. “These professionally-operated properties generate year-round guests, who will eat in local restaurants, purchase from local shops, visit attractions in the area and drink at local cafes/pubs several times a week,” he said.
“Holiday lets also require regular maintenance and upkeep, creating business for local tradespeople. One holiday rental owner had to cancel a £12,000 refurbishment project with local tradespeople because closing for one month could jeopardise him meeting the 182-day requirement.
“This latest announcement could discourage investment in properties that contribute to local economies. In turn, this may negatively affect the overall housing market in years to come.”
The Welsh Government said the use of council tax premiums was at the discretion of each local authority - and that exemptions could apply to some holiday lets. The new rules were put in place to "develop a fairer housing market" by ensuring properties are being let regularly and are operating as genuine holiday businesses, it said.
A spokesperson said: "There are a number of existing exceptions to the premiums and, following consultation, we have extended these to include properties with a planning condition which specifies that the property may only be used for holiday lets or which prevents its permanent occupation as a person’s sole or main residence. This means that holiday lets captured in this exemption would not be subject to the premium.
"We have also updated our guidance to confirm that local authorities have discretionary powers to reduce or remove the requirement to pay a premium or the standard rate of council tax in the event that the new 182 days thresholds are not met.”
The Welsh Government said the new taxation rules for second homes and holiday cottages were put in place to ensure property owners in Wales "make a fair contribution to the communities where they own homes or run businesses".
According to figures compiled by Finest Retreats, full-time holiday lets make substantially greater contributions to local economies than second homes, owner-occupied properties and long-term rentals. Based on three-bedroom properties, it calculated second homes contribute £6,571 each year, and owner-occupied homes £12,727-a-year.
In contrast, holiday lets contribute £40,682 annually, according to FInest Retreats. This includes an average £7,171 in letting agents fees and £17,005 on eating out at local pubs and restaurants by guests.
While Mr Bond supports the taxing of empty homes, he suggested there was a way out for second homeowners facing council tax charges. He said: “We very much welcome the tax premiums on empty second homes, which have little benefit to the local economies. The increased taxation not only draws a line between second properties and holiday let properties, which operate as small businesses, but also encourages owners to professionally market properties as holiday lettings.”
READ NEXT:
- Living and dying in pain: The victims of Wales' NHS waiting list scandal
The new laws and financial support changes being introduced from April 2023
The £3.90 fry-up Welsh politicians can enjoy that makes a mockery of plans to make us eat healthily
Adam Price blames the media for Plaid's failure to make gains under his leadership
