Tax breaks threaten rural homes

Proposed government plans to allow tax breaks on second homes are likely to inflate rural property prices and drive people away, lobby groups have sai

11:59 25 August 2005

Proposed government plans to allow tax breaks on second homes are likely to inflate rural property prices and drive people away, lobby groups have said.

Under the new guidelines, due to be brought into effect in April next year, property investment will count towards pension savings so will qualify for the tax break.

Homeowners and property moguls will be able to claim significant tax breaks on the purchase of second homes.

The BBC estimates that this will allow the highest earners to claim 40 per cent back from the government from the purchase of a holiday home.

Critics of the scheme, however, predict that the rule change will have adverse effects on rural areas.

Second home ownership, combined with a shortage of affordable housing, has already caused property prices to rise dramatically in rural areas, and this trend will merely continue, they say.

The average house in a rural area now costs 231,053, compared to 197,051 for a home in urban areas, recent studies show. Meanwhile, over four times as many second homes are purchased in rural areas compared to towns and cities.

Last month the government established the Affordable Rural Housing Commission (ARHC), in recognition of the problems experienced by first time buyers and low earners.

The ARHC is confused by the government's latest announcement. A spokesman said that "on the face of it" the scheme seemed to contradict the government's professed aim to stabilise the rural housing market.