Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q.: I live in London and have a second home in the English countryside. Can you explain how the new double council tax on empty properties could affect me?
A: If the second home is furnished and being used, or if it hasn’t been subject to the tax premium in the past and nothing has changed, it’s unlikely it will be charged now.
Since 2013, local authorities have had the ability to charge higher tax premiums on properties that have been empty for two years, according to Holly Bradley, a senior associate at Baker & McKenzie in London.
The additional tax was implemented to "encourage owners of empty homes in England to bring them back into use," Ms. Bradley said. "Currently, the premium charge can be up to 50% of the amount of council tax due on the property."
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However, in November, U.K. chancellor Philip Hammond "announced the government's intention to give local authorities the ability to increase the amount of this premium from 50% to 100%," Ms. Bradley said.
The ability to increase council tax is at local authorities' discretion, according to Elizabeth Small, a partner at the London-based firm Forsters. Homes assessed as part of the Council Tax billing process could be subject to the tax premium if deemed "empty."
No details have been provided yet as to when this new measure will start being enforced, Ms. Bradley said.
"The tax is not just targeted at foreign owners or London property, so those who own countryside homes or second houses by the sea could find themselves with punitive rates if the property falls within the definition of empty," Ms. Small explained.
Empty homes or annexes that belong to a larger single property as well as those belonging to deployed members of the military are not subject to the tax, according to the lawyers. Other exceptions apply, but not all situations are black and white, however, Ms. Small said.
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"At the time of the introduction of the 50% enhancement the government stated that it expected authorities 'to consider the reasons why properties are unoccupied and unfurnished, including whether they are available for sale or rent and decide whether they want such properties to be included in their determination,’" Ms. Small explained.
"This is a sensitive issue as often properties are empty due to disputed probate or medical issues," she added.
Ms. Bradley does not see the increased tax premium as a deterrent to wealthy investors. She sees the potential additional tax as a "very small cost of investing" in the high-end property market in the U.K.
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