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Council Tax changes in UK may hit Hong Kong property owners

Extension of local property taxes to ease homes shortage is likely to hit Hong Kong investors

PUBLISHED : Wednesday, 17 April, 2013, 12:00am
UPDATED : Wednesday, 17 April, 2013, 5:31am

Hong Kong owners of British property may find their costs rising following changes to local government charges which came into force last week.

The charges, known as Council Tax, will be levied on all empty properties, including vacant rental homes. Occupied abodes will remain taxable in the same way as before.

Residents pay Council Tax to cover the cost of services such as refuse collection and street cleaning. The amount of tax varies from one local authority to another and according to the value of the property, but ranges from hundreds of pounds to several thousands of pounds each year.

When rental homes are occupied, the tax is paid by tenants; when empty, the landlord pays.

Previously, empty properties, including those being refurbished or left vacant between lettings were exempt from Council Tax, and it was levied at a discounted rate on holiday homes.

But, from this month, all homes can be taxed at the full rate. In addition, councils can add a 50 per cent premium to the tax on homes left vacant for two years or more.

Some councils are levying Council Tax at the full rate from the outset, but others will wait one or two months, or give discounts. For example, empty, unfurnished rental homes in Southwark, south London, are exempt from the tax for two months until the end of May. The government introduced the changes because it wants fuller use made of housing to help alleviate Britain's homes shortage.

The full impact of the changes on landlords will be felt mostly outside London, where void periods tend to be longer than in the capital and Council Tax rates are higher relative to rent levels.

Gavin Sung, director of residential development lettings at Savills, said void periods for flats in London average 14 days, but they could be longer for houses.

"Within London, void periods and Council Tax levels are simply not a major concern," said Sung. "A month or two of Council Tax is typically not going to place a huge infringement on a property's investment potential."

Robert Hadfield, head of investment property management company Pineflat, said Council Tax could reduce returns for landlords, particularly if the amount of tax levied continued to rise, so he recommended investors minimise the period properties were left vacant.