Kath Nugent, 52, was devastated when she lost both of her parents within weeks of each other in 2020. After her mother died of dementia, her father died from lung cancer on the day of the funeral two weeks later.
Nugent and her brother, Richard Ellis, knew they would inherit the two-bedroom bungalow near the seafront of Rhyl, in north Wales, where her parents had lived for 20 years. What they didn’t expect was the council tax bill of almost £5,000 a year.
In 2017 Welsh councils were given permission to put a council tax premium of 100 per cent on second-home owners. This increased to a maximum 300 per cent in 2023. Denbighshire council, which covers Rhyl, is making use of these powers.
Normally a household in council tax band C in the area would pay £1,840 a year. Nugent, who is an administrator within the NHS, received a bill for £3,710 last year. This year, it will increase to £4,900.
“I couldn’t believe it when the letter came through,” Nugent said. “We would have liked to have kept the bungalow for at least another few years, but this has meant we have to put it on the market.”
Councils are raising taxes to protect towns from being deluged with holiday rentals and buy-to-lets, and to ensure that locals can still afford to buy. But accidental second-home owners, who inherit a home when a loved one dies, are increasingly being caught in the net.
Elliot Keck, head of campaigns at the TaxPayers’ Alliance, said: “Contrary to what people may think, this is going to hit ordinary hard-working households and punish those simply inheriting modest houses. This very naked cash grab needs to be cancelled before it does real damage.”
More people are set to be affected after councils in England were given powers to charge second-home owners up to 100 per cent extra in council tax as of April 1. Research by the estate agency Hamptons found that 71 per cent of England’s 317 councils will implement some level of second-home charge, with about 237,500 owners in England now expected to be liable for the tax. This includes holiday hotspots in North Yorkshire and Cornwall, and cities such as Bradford and Bristol, along with several London boroughs.
• Is it fair that second-home owners pay more council tax?
The great tax transfer
For many people, their home is their biggest financial asset. Passing it on to loved ones already brings complications in the form of inheritance tax and capital gains tax, and more people are set to feel the effects of this.
In what has been dubbed the “great wealth transfer”, the investment firm Aberdeen estimates that £5 trillion will pass down the generations in the next 30 years. Millennials and Gen Zs are set to see a large amount of this arrive in the form of property from their baby boomer parents and grandparents.
Analysis carried out by Hamptons for this publication found that 175,000 estates contained residential property in 2021/22, the most recent year the data was gathered. This means that 79.2 per cent of all estates included homes, up from 69.5 per cent in 2016/17, and from about 59 per cent in 2006/07.
When someone inherits a home, they typically need to complete the probate process before it can be sold. If inheritance tax is due, the bill must be paid by the end of the sixth month after the person’s death — otherwise, interest begins to accrue on the debt, currently at a rate of 8.5 per cent.
Last year, Money reported that some people were waiting nine months or longer to be granted probate, leaving them stuck if the money that would settle their IHT bill was tied up in a property they could not sell.
Individuals can pass on £325,000 free of inheritance tax when they die, and an extra £175,000 if leaving their main home to a direct descendant, as long as their estate is worth less than £2 million, above which you start to lose the additional allowance. Amounts above the tax-free threshold are typically taxed at 40 per cent.
Estates including property have a six-month exemption period from council tax to allow for the grant of probate to be obtained, as long as they remain unoccupied. Second-home owners can also get a 12-month exemption from the extra council tax levy from the time probate has been granted, again, as long as the property remains empty. Depending on the local authority, a further 12-month exemption is available at the point you put a second home on the market for sale.
Heather Powell from the accountancy firm Blick Rothenberg said anyone who inherits a home needs to be fully aware of the costs involved in keeping it: “You now have the higher council tax, probably higher home insurance as you won’t be there all the time, and when you sell there is up to 24 per cent capital gains tax to pay.”
Powell believes the latest council tax levies could be the “final nail in the coffin” for people inheriting a property who may once have considered holding on to it as a second home.
• How to challenge a council tax band in England
Denbighshire, which includes Rhyl, has 427 second homes
ALAMY
Selling up
Nugent, who visits the home in Rhyl regularly throughout the summer, is a reluctant seller. That her father, Bill Ellis, was a local historian who wrote three books about the town, makes the decision even more emotional.
“It has made it even harder. I feel like I can’t sell because dad was so positive about Rhyl,” she said.
While Nugent did not have to pay inheritance tax, because her parents’ estate did not exceed £325,000, she will have to pay capital gains tax if the property sells for more than the amount it was valued at when she inherited it. CGT is payable at 18 per cent on property for basic rate taxpayers and 24 per cent for higher and additional rate payers.
There are 427 second homes across Denbighshire, a local authority with a population of 98,500. The council said the aim of the tax was to encourage more house sales, to improve stock in the area, tackle homelessness and increase the supply of affordable housing.
• Council tax is going up 10% in some areas. Here’s why
The house was put on the market last week, which means Nugent will be exempt from the second-home premium for a year. But she shouldn’t necessarily expect a quick sale. In an area where the average house price is £208,846, according to Principality Building Society, Nugent’s bungalow is listed for £175,000.
“It is the same story everywhere in Wales — the market is absolutely saturated with people selling their second homes,” said Carol Peet, from the property consultancy West Wales Property Finders. “They are just sitting on the market, and while this may bring the price of homes down a bit, they are always going to be out of reach of locals.”
Nugent said: “We visit Rhyl a lot, we contribute to the local area, and shouldn’t be hit because of inheriting a house. People are inheriting properties across the country and we are being penalised for it.”
