Second homeowners exploiting a tax loophole are set to cost councils across England and Wales a staggering £334 million, new analysis reveals.
According to research by property consultancy Colliers, thousands of owners are converting their second homes into holiday lets to sidestep hefty council tax bills – some saving four-figure sums annually.
By letting their properties for just 70 nights a year and making them available for 140, owners can qualify for business rates relief and avoid paying any council tax at all.
The amount of council tax lost due to this loophole has doubled in the past year – up from £170 million – highlighting what critics say is a failed policy.
Kevin Hollinrake, Shadow Housing Minister, slammed the government’s approach: “Labour couldn’t even be bothered to assess the impact or target areas with genuine housing pressures. This policy has spectacularly backfired – and local communities will pay the price.”
In Cornwall – often dubbed the second home capital of Britain – more than £52 million in council tax will be lost to over 10,700 properties listed as holiday lets.
John Webber, head of rating at Colliers, criticised the policy’s consequences: “This isn’t solving the housing crisis – it’s worsening it. Councils are collecting less money, which means fewer funds for local services and affordable housing. The real failure lies with politicians who don’t grasp the issue or lack the will to fix it.”
As of 1 April, councils in England were granted powers to impose a 100% council tax premium on second homes, under Conservative-led legislation. In Wales, the surcharge can reach as high as 300%.
Currently, 230 of England’s 296 councils, and 20 of 22 in Wales, have adopted the higher tax rate – but many homeowners are evading the levy.
Under the rules, a property qualifies as a holiday let if it’s available for at least 140 nights per year and actually let for a minimum of 70.
Once it meets these conditions, it falls under business rates – which can be significantly reduced or even eliminated through Small Business Rates Relief.
Owners of properties with a rateable value below £12,000 can receive 100% relief. For those between £12,001 and £15,000, the discount is tapered – a property valued at £13,500 would receive 50% off its business rates.
Across England and Wales, around 73,838 properties currently receive business rates relief as holiday lets.
Although this marks a slight drop from 80,000 the previous year – due to tighter regulations – Colliers warns the number is likely to rise again as the double council tax policy drives more owners to exploit the system.
Before 2023, homeowners simply had to declare an intention to let in order to qualify. But this year, Chancellor Rachel Reeves scrapped tax perks for furnished holiday lets in her first Budget, in a move aimed at encouraging longer-term tenancies.
Despite the clampdown, the South West – one of the UK’s most popular holiday regions – still records over 21,600 properties claiming full business rate relief, only a minor decrease from last year.
Local councillors are urging the Government to take further action. Peter La Broy, a Cornwall councillor, said: “Turning homes into shell businesses to avoid tax is blatant evasion. I will continue to press for these loopholes to be closed.”
In Pembrokeshire, independent councillor Mike Stoddart echoed concerns, stating there is “considerable tax avoidance” via business rate loopholes in the county.
Wales has already tightened its rules, raising the threshold for a property to qualify as a holiday let from 70 to 182 days of actual lettings per year.
A Government spokesperson said: “We’ve abolished the favourable tax treatment of furnished holiday lets and plan to introduce a short-term let registration scheme to safeguard local communities. Stricter criteria are already in place, and we continue to monitor for further action.”
