A property firm has branded the current council tax rules for holiday homes “a mess” and says local and national government are losing millions of pounds of potential income as a result.

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 £172m a year at 2024/2025 levels. 

Under latest regulations, owners with properties available to rent as holiday lets for 140 days of the year, and let as self-catering accommodation for short periods totalling 70 nights or more, 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. 

Now Colliers property consultancy says that despite tighter regulations introduced by the last Tory government, substantial amounts of tax are still avoided.

Colliers has analysed the rating list for Cornwall, Devon, Dorset and Somerset and found 100% business rates relief claimed by 23,412 properties, only slightly down from 23,817 a year ago. 

If these 23,412 properties which currently claim relief – so pay neither business rates nor council tax – instead were obliged to pay the basic council tax, the local councils would benefit by over £55m.

The company claims the issue is most acute in Cornwall where 11,259 holiday let properties pay neither business rates nor council tax, due to the virtue of being holiday lets and classified as non-domestic. It estimated that if these properties paid council tax, over £26m of extra income would be raised every year in Cornwall alone.

John Webber, Head of Business Rates at Colliers, says: “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.”

Webber fears that current policy towards second homes could make the situation even worse, unless amended by the new Labour administration. 

Under the Conservatives’ Levelling Up and Regeneration Act, local authorities have 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. Cornwall Council has announced it will charge an additional 100% council tax premium on second homes from April 2025 and some 150 other local authorities have followed suit. 

Webber continues: ”The incentive to flip properties into the business rates list will be even higher as council taxes rise. Some councils are talking about rises of 200 or 300%.”

Looking at England and Wales as a whole, Colliers estimate that there are now 79,874 holiday let properties in the business rates lists in England and Wales that are eligible for 100% business rates relief, and would not pay business rates or council tax. This leads Colliers to claim local authority income is losing some £172m annually. 

Colliers insists the issue is not homeowners taking advantage of this tax break but what it calls “government policy for over-seeing this mess which inevitably leads to friction in many coastal resorts.”