A tax cut for owners of second homes will worsen the housing crisis in the countryside, the Prime Minister’s adviser on rural affairs says today.

Stuart Burgess, the Government’s Rural Advocate, believes that Gordon Brown should scrap a reduction in capital gains tax which is due to come into force next month.

The tax cut means that owners of second homes will be able to keep more of their profits when they sell the property. Mr Burgess believes that the move will lead to a frenzy of speculation in some of the most picturesque areas of England and make it even more difficult for first-time buyers and young families to get on to the property ladder. His criticism is included in his annual audit of government policy and its impact on rural areas.

The move for lower taxes for second-home owners is curious as a separate review of the rural housing crisis, commissioned by Mr Brown from Matthew Taylor, the Liberal Democrat MP, is examining whether councils in beauty spots should have the discretion to prevent houses from being sold as second or holiday homes. Mr Taylor is due to finalise his report by the summer. The prospect of lower taxes for second-home owners suggests some divisions in the Government on how to tackle the lack of affordable rural housing.

The plan to cut capital gains tax was announced by Mr Brown in his Budget statement last year. Second-home owners will pay just 18 per cent on the sale of their properties instead of the standard 40 per cent rate. People who have owned a second home for 10 years have been allowed to pay 24 per cent.

Rural campaigners are shocked that when lack of affordable housing is the most pressing issue for country dwellers that second-home owners are to benefit from an even lower rate of tax.

Dr Burgess is convinced that if the change comes into force next month, many owners will decide to cash in on their nest egg. His report to the Prime Minister states: “I was disappointed at the intention to reduce CGT on second homes. In some rural areas the proportion of second homes is very high. They total nearly a quarter of homes around Brancaster, on the North Norfolk coast. This can significantly affect local housing affordability and the sustainability of communities. I would urge the Government to consider removing this tax reduction.”

Dr Burgess also calls for local authorities to use council taxes from second-home owners to invest in a new fund for local housing. He told The Times: “This change in tax could lead to property speculation in rural areas where the price of second homes is already high. I think there will be many people ready to jump on the bandwagon whether it is for buy to let or for someone who may choose a long-term investment of 15 years.”

Neil Sinden, Director of Policy at the Campaign to Protect Rural England, is also worried about the effect of the reduced tax. He said: “I’m pretty sure they did not give any consideration on the impact this would have on the rural economy. However, it might be easy for the Government to drop if it was suggested that MPs were able to profit from the tax changes.” MPs would be among those paying lower tax on the sale of second homes.

Tim Bonner, spokesman for the Countryside Alliance, said: “It is extraordinary that the Government is considering a policy that is bound to create even more demand for housing in the countryside when rural areas have some of the highest house price to income ratios in the country.

“To young families a house in their local village is a future home, not a potential capital gain. Ministers might take their second homes for granted, but many people in the countryside cannot afford their first.”

A Treasury spokesman said that the department had not yet seen the report. However, he defended the tax change and said that it was intended to simplify the tax system for capital gains and to give incentives for investment and enterprise. The move was demanded by tax accountants, he said.

Popular bolt-holes

1 City of London

2 Isles of Scilly

3 South Hams

4 North Cornwall

5 North Norfolk

6 Berwick-upon-Tweed

7 Westminster

8 Kensington & Chelsea

9 Penwith

10 South Lakeland

Source: Department for Communities and Local Government

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