Second home council tax rise backfires and costs £383m

Second home council tax premiums are costing the public purse an estimated £383 million a year, according to research from Colliers.

The business rates specialist says councils trying to double bills on second homes are instead pushing more owners into the business rates system, where many then pay nothing.

Colliers says 85% of local authorities in England and 91% in Wales have introduced higher council tax charges on second homes.

However, its analysis suggests the policy is encouraging owners to reclassify their properties as holiday lets if they meet the criteria for business rates.

Flipping onto business rates

The firm’s head of business rates, John Webber, said: “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.”

He added: “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.”

Switch to holiday accommodation

In England, owners can move into business rates if their property is available as holiday accommodation for 140 days a year and let commercially for at least 70 nights.

Where the rateable value is below £12,000, they can claim 100% small business rates relief, leaving no business rates or council tax to pay.

Properties with a rateable value between £12,000 and £15,000 may also qualify for relief on a sliding scale.

The rules are tougher in Wales, where a self-catering property must be available for commercial let for at least 252 days and let for 182 days in a 12-month period.

Colliers says the number of holiday let properties in England and Wales eligible for 100% business rates relief in 2026/27 has risen to 77,241, up from 73,838 last year, a rise of 4.4%.

How much is being lost

The South West has the largest concentration of affected properties, with 22,970 holiday lets in Cornwall, Devon, Dorset and Somerset now claiming full business rates relief.

That’s up from 21,678 last year and means those properties are paying neither council tax nor business rates, according to Colliers.

If those homes were paying double council tax as second homes, councils in those counties could raise an extra £119 million a year.

Cornwall accounts for 11,450 of the properties, up from 10,731 last year.

Colliers estimates that represents a £59 million annual loss for the local authority, while more than £180 million could have been raised over five years.

North Yorkshire also has 5,910 properties in the business rates system with rateable values below £12,000, meaning they pay no business rates or council tax.

Colliers says that amounts to another £30 million in lost local authority income this year.

The firm argues that the policy is reducing local income at the same time as councils are under pressure to fund services and affordable housing.

It says some local authorities may receive compensation from central government, but less money is being collected locally from the properties concerned.

‘Ridiculous short-sighted policies’

Mr Webber said: “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.”

He added: “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.”

The firm is calling for a review of the council tax and business rates systems to close loopholes and protect local government finances.