UK government won’t stop penalizing second homeowners; local council taxes set to be doubled

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(Bloomberg Opinion) — This is getting personal. Michael Gove, the UK’s housing minister, seems determined to make life miserable for those who own more than one dwelling, particularly landlords who rent out for short-term or holiday lets. Local council taxes are set to be doubled on these second properties in England, coming after a series of tax breaks have already been removed and purchase duties raised.

Local council taxes are set to be doubled on second properties in England, coming after a series of tax breaks have already been removed and purchase duties raised (Picture for representational purposes only)(Photo by Spacejoy on Unsplash)
Local council taxes are set to be doubled on second properties in England, coming after a series of tax breaks have already been removed and purchase duties raised (Picture for representational purposes only)(Photo by Spacejoy on Unsplash)

It’s cheaper to appear as single in the eyes of the taxman

As landlords are likely to just pass through the extra costs it will likely serve to drive up inflation. It’ll almost certainly make domestic holidays less affordable and reduce tourism income. It could even drive up the divorce rate: It’s cheaper to appear as single in the eyes of the taxman. 

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Also Read: Have a crore to invest in a second home in Goa? Here’s what you should know

Single-person discounts of 25% look compelling compared to the soon-to-be-doubled payments demanded of the multi-property-owning married couple. It’s deeply unconservative to smother legitimate private-sector activity in such a fashion. It would also add to the swaths of red tape choking a property sector in dire need of major reform. Levelling down is not the same thing as the levelling up promise in the government’s campaign manifesto that is Gove’s direct responsibility. 

With an election looming, a virtue signal to those in a less-privileged position may appear smart. But it’s more likely to alienate homeowning voters than lure aspirant moths to the ruling Conservative Party’s flame. Homeowners are four times more likely to vote Conservative than renters, so it’s much more probable to lose votes than win anyone over.

The official reasoning is to encourage multi-dwelling owners to sell

It’s the latest in a succession of petty measures that raise the cost of being a private landlord. The official reasoning is to encourage multi-dwelling owners to sell, thereby freeing up properties particularly for first-time buyers. Chancellor of the Exchequer Jeremy Hunt did provide a solitary carrot in the March 6 budget by lowering the capital gains tax to 24% from 28%. Unfortunately, the world isn’t that straightforward. Cute holiday cottages are rarely in a low-enough price range for those on the initial steps of the housing ladder. 

Also Read: Why rich Indians are buying marquee properties in London

Tourist hotspots like Cornwall may see a tax-take uplift, but the lost revenue across the local economy is likely to be of a magnitude greater if tourist footfall drops. The unintended consequences from yet another isolated tax-grab look considerable. The extra levy isn’t set to come into force until April 2025 — after the next election — meaning it may never happen and could just prove another monumental waste of everyone’s time. 

Also Read: Fractional ownership market in India predicted to grow over 10x to surpass $5 billion by 2030: JLL-PropShare analysis

In reality, it’s little more than an future accounting sleight-of hand — a backhanded way for the Treasury to avoid further subsidizing local bureaucracies by allowing them to raise a modicum of extra tax. It’s deviously structured so local councils make their own decision to opt into the additional levy. Funnily enough, half of the 317 English councils immediately jumped at the chance, as they’re desperate for revenue just to keep basic services ticking over. This includes Gravesham, a relatively poor borough to the east of London on the River Thames estuary, despite having only 21 registered second homes. It hardly seems worth the bother, but it’s masking a desperate plea for help.

Also Read: 6 wealthy Indian businessmen who own properties in London

Six councils have effectively declared bankruptcy, including the UK’s second -largest city, Birmingham. Several more are warning of impending doom. Estimates from a poll of local authority leaders are that one in 10 could fail if the fiscal cavalry doesn’t show up. 

Local taxes are already going up by 5% across the board this year, with those in the worst shape allowed to raise by more.For whatever reasons, this government has very little to show for its efforts on housing following the dropping of the much-needed reform of leasehold properties. Certainly these latest proposals do nothing for building new homes where they’re needed. That, however, provides an open goal for the next government.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. Previously, he was chief markets strategist for Haitong Securities in London.

 

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