Monday, 17 September 2012

PROPERTY ARTICLE: Government to scrap second home council tax discount. Copyright SvD.

Government to scrap second home council tax discount

The government has announced plans to scrap the second home council tax discount- what will be the implications for homeowners and landlords?

A client once showed me around his property portfolio in Central London which consisted of at least ten flats and a couple of houses in prime Central London. As I recall, the properties were all sumptuously furnished, spacious, in perfect condition and their value was stratospheric. Yet still my client never used them and the properties lay empty year-in and year-out. When I suggested that he could possibly rent them out and obtain a return on the money he had spent buying them, I was met with an incredulous look. Hence the reason it is said that if you drive through certain parts of London in the evening, you can tell which flats are owned by absentee owners- because the lights never come on!

Previously the government had allowed second home ownership to benefit from a few perks- notably a reduced council tax bill. All that is about to change and soon the council tax will be increased to its normal rate. The government is hoping that the increased taxation will force owners to rent out their properties and put them back in the market where a shortage of homes in certain areas is chronic. The other outcome that the government is hoping for would be to drive down prices and make the homes more affordable especially to locals who are priced out of the market. The move may encourage owners to offer their homes for letting instead of keeping them purely for the odd holiday for their families. The main objective for the government is to increase revenue to fill their coffers and whilst some may applaud the move I do think that hard-working families who have saved to afford a second home should not be penalised either.

With regards to empty properties such as those owned by my client in London as I mentioned before, the current rules are that if the property is empty and unfurnished there is no council tax to be paid for up to 6 months. If the property is furnished, the discount is 10%. In the days that I managed properties on behalf of landlords, I found councils to be quite fair on this issue and were willing to take the agent’s word or to offer rebates and credits. It is worth noting that council tax will be frozen for the next two years in a bid to help hard-pressed families. However owners should note that increases in the cost of policing, or budgets for parish councils, for example, and which are separate to the basic council tax tend to go up on an annual basis so there is always an increased council tax to pay regardless. Owners should take these incremental increases into account that is if they plan to keep their properties empty. Although given that the lettings market is busier than ever, homeowners should do well to become landlords and get their properties to work for them!

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