Recent research from Colliers reveals that attempts by local councils to increase council tax premiums on second homes are inadvertently costing the public purse an estimated £383 million annually. Rather than boosting revenue, these measures are prompting many second home owners to reclassify their properties as holiday lets, thereby avoiding council tax altogether through business rates relief.

Council tax premiums on second homes

Colliers, a business rates specialist, reports that 85% of local authorities in England and 91% in Wales have introduced higher council tax charges on second homes. The intention behind these premiums was to raise additional funds from owners of second properties. However, the policy has had unintended consequences, encouraging owners to shift their properties into the business rates system where many pay no tax.

Flipping properties into business rates

John Webber, Colliers’ head of business rates, explains: “The figures show the short-sighted policy of trying to extract money from those with second homes is backfiring.” He adds, “Introducing higher council tax on second homes is simply encouraging more owners to ‘flip’ into the business rates system.”

Webber emphasises that while most owners are willing to pay their fair share, the current government policy effectively incentivises them to switch to business rates, where they may pay nothing. “We blame the government for this, not people with second homes,” he states.

Holiday accommodation criteria and relief

In England, properties can qualify for business rates if they are available as holiday accommodation for at least 140 days a year and let commercially for at least 70 nights. Properties with a rateable value below £12,000 can claim 100% small business rates relief, resulting in no business rates or council tax liability. Those with rateable values between £12,000 and £15,000 may receive partial relief on a sliding scale.

Wales applies stricter conditions, requiring self-catering properties to be available for commercial letting for at least 252 days and let for 182 days within a 12-month period.

Colliers’ data shows that the number of holiday let properties eligible for 100% business rates relief in England and Wales rose by 4.4% in 2026/27 to 77,241, up from 73,838 the previous year.

Financial impact on local authorities

The South West of England has the highest concentration of affected properties, with 22,970 holiday lets in Cornwall, Devon, Dorset, and Somerset now claiming full business rates relief. This figure has increased from 21,678 last year, meaning these properties pay neither council tax nor business rates.

If these properties were paying double council tax as second homes, councils in these counties could raise an additional £119 million annually. Cornwall alone accounts for 11,450 such properties, representing a £59 million annual loss for the local authority and over £180 million lost over five years.

North Yorkshire also faces significant losses, with 5,910 properties in the business rates system paying no council tax or business rates, equating to around £30 million in lost income this year.

Colliers highlights that this reduction in local income comes at a time when councils are under increasing pressure to fund essential services and affordable housing. Although some local authorities may receive compensation from central government, the overall local revenue from these properties is diminished.

Critique of current policies

John Webber criticises the existing measures as insufficient deterrents: “Although tighter measures are in place than in the past, they do not prove a strong enough deterrent to stop second home owners from flipping their properties into the Rating List and avoid paying the tax, particularly in England, where owners only need to let out their property for 10 weeks of the year.”

He describes the policies as “ridiculous” and “short-sighted,” noting that offering either double taxation or no taxation at all is unsustainable. “It distorts behaviour and undermines the ability of local authorities to raise vital funds,” he says, adding that the approach “certainly isn’t funding affordable housing for locals.”

Webber concludes by condemning the political strategy of blaming second homeowners for social housing shortages and attempting to penalise them through the tax system, stating this approach is “not only short sighted it is actually raising less money.”

Calls for reform

Colliers is urging a review of both the council tax and business rates systems to close loopholes and protect local government finances. Without reform, the current policies risk continuing to reduce local authority income and fail to address the underlying issues in housing and taxation.

What this means for landlords

For landlords, these findings highlight the complexities and unintended consequences of current council tax policies on second homes. Owners of holiday lets may find themselves incentivised to meet the criteria for business rates relief, potentially reducing their tax liabilities. However, this also signals ongoing uncertainty in local taxation frameworks and the need for landlords to stay informed about policy changes that could affect their financial obligations.

Landlords should monitor local authority announcements and consider the implications of property classification on their tax responsibilities. The call for a review suggests that future reforms may alter the landscape, making proactive engagement with tax advisors and local regulations increasingly important.

Source: Based on reporting from Property118

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