Government Doubles Council Tax, Exposes Broken Business Rates System

The situation has been exacerbated by the Government allowing local councils to elect to charge double council tax on second homes in England and even higher rates in Wales.  According to John Webber Head of Business Rates at Colliers, “This will just encourage more second homeowners than ever to “flip “ their properties into the business rates list when they can.”

Colliers estimate the total loss to government due to the system of business rates relief for holiday lets in England and Wales alone is now around £334 million a year (2025/2026) - a significant sum that could certainly have helped bridge the gap in local government finances.

Under current regulations, property owners who make their properties available to rent as holiday lets for 140 days of the year and let them as commercially as self-catering accommodation for short periods of 70 nights or more, can claim they are a small business and as such can elect to pay business rates instead of council tax. As small businesses they can then claim for relief on 100% of the business rates payable if their properties have a rateable value of less than £12,000. Those properties with a rateable value between £12,000 and £15,000 are also entitled to a relief on a sliding scale in line with the current business rates relief policy.

Although the previous (and current) government was trying to reverse the trend of holiday homeowners “flipping” from the council tax to business rates system to avoid paying any tax, through introducing the tighter regulation, the figures are still high. Colliers has analysed the rating list for the southwest of England (Cornwall, Devon, Dorset and Somerset ) and found there are 21,678 properties on the list claiming 100% business rates, only slightly down from around 23,000 properties last year. Given local authorities in the southwest are now charging double council tax on second homes, if these 21,678 properties paid council tax ( at Band D levels) the local councils would benefit by over £105 million. Yet currently neither business rates nor council tax are currently paid by the owners.

The Southwest holiday let business represents 29% of the total holiday lets in this bracket in the UK.

The issue is most acute in Cornwall where 10,731 holiday let properties do not pay either business rates or council tax, due to the virtue of being holiday lets and classified as non-domestic. Colliers estimate that if these properties paid double council tax, over £52 million of extra income would be raised every year in Cornwall alone, which would be a great support for local services.*

Looking at England and Wales as a whole, Colliers estimate that there are now 73,838 holiday let properties in the business rates lists in England and Wales that are eligible for 100% business rates relief, and as such do not pay business rates or council tax. Although this number is down on last year, probably due to the stricter criteria, Colliers expect numbers to increase as the implications of the double council tax takes effect.

According to John Webber, “Although current measures in place are tighter than they have been in the past, they are just not strong enough to deter second property owners “flipping” into the business rates list and thus reducing the local authority’s ability to collect funds. Local authorities seem to have managed to return some properties to the council tax lists, but this is still not enough. A second homeowner can still let out their property for only 10 weeks of the year and therefore avoid paying any business rates or council tax. The fact that the number of properties entering the business rates lists remains high, is a testament that the measures are not working.”

 He adds, “The new policy towards second homes is making the situation even worse. The government has continued the Conservative policy of allowing local authorities the right to charge double council tax on second homes, which it defines as “furnished, for own personal use but not a main residence”. Underlying this policy is a desire to reduce the number of second homes and free up more housing for the locals.

As a result, 230 out of 296 local authorities in England (78%) and 20 out of 22 (91%) in Wales have announced they are imposing this inflated levy this year with some local authorities in Wales charging even more.

According to Webber, “This will have a major impact on England and Wales’s second homeowners, who will be considering all their options.”

He adds, “If Cornwall Council believes doubling council tax on second homes is the answer to deterring second homeowners and solving the local housing crisis they are living in “cloud cuckoo land”. Offering either double tax or no tax will only encourage even more people to try to flip from council tax to business rates.  And even if some second homeowners are deterred and sell up and leave the area, locals are unlikely to be able to afford such housing and local businesses that were supported by these owners and their properties will also suffer, depleting the tax take even further.

 Webber continued, “Despite posturing little is being done by the government to properly reform the business rates system. This is especially extraordinary given the pressure on local authority finances, and the subsequent need for central government to fill any gaps.

The local tax burden remains weighed onto residents or other types of businesses that are struggling to pay their council tax or business rates bills, which have risen substantially in this last year. Meanwhile agents selling properties in popular domestic holiday areas positively advertise the business rates savings advantages of gaming the system.

And while Local Authorities may be compensated by Central Government in some respects for these losses in council tax, the point is less money will be collected locally which will mean less to spend on services or on affordable housing that local residents actually need.”

He adds, “Politicians bicker about the lack of social housing in places like Cornwall and portray people buying second homes as the villains. Yet if Cornwall Council had been able to charge holiday let owners at least the same as a council taxpayer they would have received over £150 million of extra income in the last five years alone, which they could have spent on building affordable housing in the county.  The problem is not second homeowners; it is politicians failing to understand the issues and having the courage to do something about it.”

“The government should reform the whole system and do it thoroughly.”

Please note:

Colliers does not blame the homeowners that take advantage of this tax break through making their properties available to let- this could be considered sensible tax planning. However, we do blame government policy for over-seeing this mess which inevitably leads to friction in many coastal resorts. Most second homeowners would accept the need to pay the minimum of council tax and neither need nor expect to pay either nothing or double when public services are under enormous pressure.