Cornwall councillor Steve Arthur is convinced that this year’s council budget will have a large hole in it because of tax-avoiding second home owners.
Arthur, a local businessman who runs a holiday cottage firm in Perranporth on the north Cornish coast, expects many of the county’s second home owners to nominate their children as council tax payers.
About 150 councils across the UK, mainly hosts to beauty spots, will levy a 100% council tax charge on second home owners from April. But putting an adult child’s name on the council tax form will relieve the owners of paying double the standard £2,342.54 band D rate from April.
“No one likes to pay double. And if they can install their kids in the property, who is to say they are not the owner?” said Arthur.
This could sabotage the carefully calculated financial planning by Cornwall’s councillors ahead of next year’s budget, he believes. “I am not saying everyone with a second home is going to transfer ownership to their children, but many of them will. And I am not saying they will necessarily do it in the first year, but they will once they see the cost and how easy it is to avoid,” he said.
With few resources to check on who owns a second home, councils must rely on homeowners to self-declare the status of their property.
The clampdown on second home owners is the latest attempt by cash-strapped councils to plug huge budget shortfalls, after years of austerity, while trying to lower the cost of home ownership for locals. Cornwall plans to raise an extra £24m from 12,400 second homes to balance its budget.
But a shift by second home owners to holiday letting could also deny the council much-needed cash – and may not help solve the property crisis. While letting out a home to holidaymakers is a business, the income from a single property will usually fall below the business rates threshold, allowing the owner to pay no tax.
There might also be a flurry of applications to the Land Registry by families wanting to swap the designation of their main residence. That is an option if their current main home is located in one of the 30% of local authorities that have yet to impose a second home tax.
Some councillors in Cornwall want the policy to raise more funds, while others hope it will force owners to sell, bringing down prices and freeing up homes for locals.
Craig ab Iago, a housing cabinet member on Gwynedd council in north-west Wales, predicts that everything Arthur fears will come true. Gwynedd has been the testbed for a second home tax and has seen all the implications play out over the past four years.
Initially, owners converted second homes into holiday lets. They advertised them for rent, but little changed and they remained largely available for owners to visit, he says. A clampdown pushed second home owners to try other methods to avoid the tax, especially after a rise in the tax surcharge to 150%. Ownership increasingly switched to children, while others changed their main residence.
House prices in Gwynedd have fallen – by more than 12% year-on-year – though it took the introduction of a requirement to obtain planning permission before turning residential properties into second homes or holiday lets to accelerate the trend. Gwynedd has still earned extra funds, but Cornwall, which lacks these extra powers, could find it has a long wait before it reaps all that is owed.
Dan Neidle, an independent tax expert, said Cornwall was likely to miss its budget target because the status quo was unlikely to be a good guide to the future.
“Up to now, people who own two homes haven’t needed to think about which one is their main residence. Once they do, it might be they realise they spend more time in the second home and switch,” he says. There might be a short-term effect on prices as some people sell up, he added, “but this is likely to be modest and not as much as would be needed to make them affordable to local people”.
Most councils have agreed budgets that seek to cope with enormous spending shortfalls ahead of the next financial year in April.
After raiding reserves and making cuts in transport provision to close a near £50m spending gap, Cornwall will raise £417m from council tax on main residences and £271.5m from business rates, along with a government grant worth £101m.
In this context, second home tax income might seem like a minor element, but any shortfall in expected income plunges the council further into the red and drives it ever closer to filing the notorious section 114 notice that declares a local authority is in effect bankrupt.
Hundreds of councils are known to be edging closer to the financial abyss after a jump in adult and child social care costs. A report by the National Audit Office last week said half of councils could be bankrupt within a few years.
Double council tax on second homes is one way to help break out of the debt trap. Another strategy is being championed in Wales and by Edinburgh council: a tourist tax that, in the Scottish capital’s case, could raise more than £40m.
It is also under consideration in York, where the council says 80% of respondents to a 2025 budget consultation process said they approved.
The pressure is on ministers to sanction such local initiatives after Manchester introduced a £1-a-night room levy on hotels in 2023 using what has been described as a legal “workaround”. Figures show it raised £2.2m in its first year.
But Tony Travers, the local government expert at the London School of Economics, said second home and tourist taxes were sticking plasters on a broken local government funding model.
“The government has inherited a situation that is untenable,” he said.
“You can see how badly councils are affected by the sheer number of potholes. They are also a visible sign of de-development, which we are seeing everywhere as amenities like libraries close and the infrastructure begins to fray.”
Analysis by the House of Commons Library reported council spending power in 2024, after a rise in 2020 and 2021, remains about 11% below its 2010-11 level in real terms.
A look inside most council budgets shows a huge shift in that time from a wide range of activities to an almost exclusive focus on social care. Spending on social care has jumped from 52% to 80% of council spending since 2010, while the allocation for cultural and related services is down by 36.8%.
Meanwhile, planning and development services, which lie at the heart of the government’s growth agenda, have suffered an average 35.7% cut.
In Cornwall, the council is pressing ahead with a second home tax, despite misgivings on the part of some councillors that it will fail to realise the expected income.
House sales are already on the increase, according to local estate agent Jo Ashby, many of them by second home owners reluctant to pay the extra tax.
As managing partner of John Bray, which covers some of Cornwall’s second home hotspots on the north coast, she can see a benefit to the local community from the release of properties previously owned by city dwellers far away.
“The council tax change has triggered a huge debate and many people are thinking about selling up. Prices have already fallen,” she said.
According to figures from the property website Rightmove, house prices in Cornwall fell 5% last year.
“At times it feels like the council is killing a golden goose when it targets second homes, but we have a housing crisis, and everyone knows it,” Ashby said.
She added that the council might suffer on both fronts. She is sceptical that a flurry of sales and a price drop – even by as much as 20% – would allow locals back into areas dominated by second homes.
Travers believes only the Westminster government can solve councils’ funding crisis. “The sums of money needed from extra fundraising are too small to bridge the gap between what councils are being asked to do and their income. A second home tax and a tourist tax only scratch the surface,” he said.
Article by:Source: Phillip Inman
