Energy bill grant should be taxed for second home owners

The Chancellor’s decision to provide a ￡400 grant through energy bills means that second home owners will get a double payment which should be taxed

Wealthy households with holiday homes in the UK or a pied-a-terre in London will qualify for the ￡400 fuel allowance on each property.

This means that 772,000 second home owners will be credited with ￡800, amounting to ￡620m while a further 61,000 third home owners will see a ￡1,200 windfall, worth ￡73m.

Questioned about the universality of the scheme by MPs at a Treasury Committee hearing earlier this week, Chancellor Rishi Sunak said: ‘That is the challenge with any universal policy. We had only two ways to do something about this. We are delivering this through energy bills, now you could choose to do it through council tax bills. Having gone through all the options, I don’t think there is a better way to do it. We think this is the most effective way to get help to a very large number of people who need it.’

Robert Salter, a client service tax director at Blick Rothenberg, said: ‘One of the potentially unforeseen consequences of Rishi Sunak's new ￡400 fuel allowance - is that those households with holiday homes in the UK or pied-a-terre in London - typically amongst the wealthiest taxpayers in the UK, will qualify for the ￡400 fuel allowance on each property they own.

‘The ‘win' for many wealthier taxpayers is a natural consequence of the universal, 'per household' nature of the new fuel grant and the fact that the government doesn't actually have any definitive, centralised data as to which properties are 'second properties'.

‘Whilst this issue should not apply, where properties are buy-to-let properties, as the fuel allowance would go to the tenant in such cases, it still appears inequitable that the wealthiest are getting double relief at a time when many poorer and middle-income families are facing a genuine squeeze on their standard of living.

However, there are ways to use the tax system to ensure that the grants are taxed, which would resolve the unfairness.

‘The government could change the law, so that any individual receiving the fuel allowance twice needs to report the extra ￡400 as 'taxable income' on their annual tax return,’ said Salter. ‘Such a step shouldn't create any significant additional administration for HMRC, as most double homeowners would already be required to prepare and file an annual UK tax return each year.

‘Alternatively, given properties are often owned by spouses or partners equally, whilst in some cases only one partner or spouse may traditionally need to prepare an annual tax return, the government could require the higher earning owner / partner to report the full value of the second home allowance on their personal tax return.

‘Even treating this double fuel allowance as taxable - typically at a rate of 40% or 45% - would help alleviate some of the iniquity that presently arises. The government could, if it was serious about eliminating this unearned win for double homeowners, change the law so that the second fuel allowance is taxed at a rate of 100%, if it hasn't, for example, been donated to charity by the recipients.’

He added: ‘Whilst sudden changes to the tax law in this way isn't - in normal times - something which any serious adviser would recommend - we are presently in unusual times and the government needs to be serious about removing obvious inequalities and unfairness in areas such as this.’