"The figures show the short-sighted policy of trying to extract money from those with second homes is backfiring"
- John Webber - Colliers
A policy designed to discourage second home ownership is instead driving holiday let investors out of the council tax system entirely, according to new research from property consultancy Colliers.
The firm estimates the trend is costing the public purse £383m a year, as more owners reclassify their properties as holiday lets and move into the business rates system to reduce their tax liability.
The double council tax charge on second homes has been widely adopted, with 85% of local authorities in England and 91% in Wales now applying the higher rate. Rather than boosting revenues, Colliers argues the policy is producing the opposite effect, incentivising owners to flip their properties into the business rates system.
For holiday let investors in England, the route is relatively straightforward. Owners who make their property available to rent for at least 140 days a year and actually let it commercially for a minimum of 70 nights can register as a small business and elect to pay business rates instead of council tax. Where the rateable value falls below £12,000, they qualify for 100% small business rates relief, meaning no council tax or business rates are paid at all.
Those with rateable values between £12,000 and £15,000 receive partial relief on a sliding scale. Wales applies stricter criteria, requiring availability for at least 252 days and actual lettings of at least 182 days in a 12-month period.
Across England and Wales, 77,241 holiday let properties are now eligible for full business rates relief in 2026/27, up from 73,838 the previous year, a rise of 4.4%.
"The figures show the short-sighted policy of trying to extract money from those with second homes is backfiring," said John Webber, head of business rates at Colliers.
"They indicate that introducing a 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."
South West bears the brunt
The impact is sharpest in the South West of England. Colliers' analysis shows 22,970 holiday let properties across Cornwall, Devon, Dorset and Somerset now claim full business rates relief, up from 21,678 the previous year, contributing neither council tax nor business rates. If those properties were subject to the double council tax rate now standard in the region, local authorities could raise an additional £119m annually.
Cornwall is the most extreme example, with 11,450 properties currently paying nothing in either tax. The estimated annual loss to the local authority stands at £59m, a figure that compounds significantly over time. Over five years, that represents more than £180m that could have supported local services and housing.
North Yorkshire presents a similar picture. Some 5,910 properties there have entered the business rates system with rateable values below £12,000, generating a further £30m in lost local authority revenue this year alone.
A system producing extreme outcomes
Webber was direct in his assessment of the policy's failings. "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 avoiding 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, but it is also actually raising less money."
Colliers is clear that holiday let investors are operating within the rules as they stand. The firm's concern is that those rules are producing significant distortions, reducing local authority income and placing a greater financial burden on residents and businesses that do pay their taxes in full.
Reform needed
Colliers is calling for a comprehensive review of both the business rates and council tax systems to close loopholes, restore fairness and protect local government finances.
"Most second homeowners would accept paying a fair level of council tax," Webber added. "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."
