Double council tax driving holiday home flip, says Colliers

New research from business rates experts at Colliers reveals that government measures allowing councils to charge double council tax on second homes are having unintended consequences, impacting local government financing and costing the public purse an estimated £383 million per year.

The policy, now widely adopted across the UK, has seen 85% of local authorities in England and 91% in Wales introduce higher council tax charges on second homes. However, instead of boosting revenues, Colliers believe this is encouraging more property owners to reclassify their second homes as holiday lets and move into the business rates system to reduce their taxes.

Under current rules, owners in England who make their properties a business - available for rent as holiday lets for 140 days a year and let them commercially as self-catering accommodation for at least 70 nights can claim they are a small business and as such can elect to pay business rates instead of council tax.

As a small business they can then claim for 100% relief of the business rates payable, if the rateable value of the property is below £12,000- meaning no business rates or council tax are paid. Those with a ratable value between £12,000 and £15,000 are also entitled to relief on a sliding scale in line with current business rates policy. The rules on occupation in Wales are stricter- the property must be a self-catering unit available for commercial let for at least 252 days and actually let for at least 182 days in a 12-month period.

According to Colliers research, across England and Wales, the total number of holiday let properties eligible for 100% business rates relief for 2026/27 has now risen to 77,241, up from 73,838 last year up 4.4%.

As John Webber, Head of Business Rates at Colliers says, “The figures show the short-sighted policy of trying to extract money from those with second homes is backfiring. They indicate that introducing higher council tax on second homes is simply encouraging more owners to ‘flip’ into the business rates system. Most people will happily pay what they have to pay but the politics of envy is forcing people to move to business rates once they meet the criteria – the Government policy means they will then pay nothing – we blame the Government for this not people with second homes.”

The impact is felt particularly strongly in the South West of England, where Colliers’ analysis shows 22,970 holiday let properties in Cornwall, Deven, Dorset and Somerset are now claiming full business rates relief (up from 21,678 last year)—meaning they contribute neither council tax nor business rates.

If these properties were subject to council tax, which is now double in the region for second homeowners, local authorities in these counties could raise an additional £119 million annually.

The issue is most acute in Cornwall where 11,450 properties (up from 10,731 last year)  currently fall into this category, paying neither business rates nor council tax. This represents an estimated £59 million annual loss for the local authority. Over the past five years, this could have generated more than £180 million to support local services and housing.

The issue is also significant in North Yorkshire, where 5,910 properties have entered the business rates system with rateable values less than £12,000 and hence pay no business rates or council tax. This equates to a further £30 million in lost local authority revenue this year.

The findings highlight growing concerns that current policies are failing to meet their objectives. While intended to discourage second home ownership and free up housing for local communities, the measures are instead reducing local authority income and increasing the financial burden on residents and businesses that do pay their council tax or business rates. And while local authorities may be compensated by Central Government in some respects for their losses, the point is less money will be collected locally, which means less to spend on services or on affordable housing that local residents need.

Webber added: “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. The fact that the numbers doing this are increasing shows that these ridiculous short-sighted policies are not working. Offering either double taxation or no taxation at all is not a sustainable approach. It distorts behaviour and undermines the ability of local authorities to raise vital funds. It certainly isn’t funding affordable housing for locals.

Blaming second homeowners for the inability of politicians of all parties to build sufficient social housing for a generation and then trying to use the tax system to penalise them is not only short sighted it is actually raising less money. ”

Colliers emphasises that property owners are operating within the framework set by government policy. However, the current system is creating significant distortions and inequities. The firm is calling for a fundamental review of the business rates and council tax systems to close loopholes, ensure fairness, and protect local government finances.

“Most second homeowners would accept paying a fair level of council tax,” Webber said.

“The real issue is a system that allows such extreme outcomes—either double tax or none at all—at a time when public services are under increasing pressure. The government should reform the whole system- and do it thoroughly.”