A property firm has criticised the current council tax rules for holiday homes, calling them “a mess” and claiming they result in significant losses for both local and national governments. The firm argues that these outdated regulations are causing financial strain, and reforms are urgently needed to address the issue.
Colliers, a leading consultancy, estimates that the total loss due to business rates relief for holiday lets in England and Wales is around £172 million a year at 2024/2025 levels. This figure highlights the substantial amount of potential income slipping through the cracks, funds that could otherwise be directed towards essential public services and community projects.
The current system allows holiday homes to qualify for business rates relief, which significantly reduces the tax burden on these properties. Colliers contends that this loophole is being exploited, resulting in a significant shortfall in council tax revenue. They suggest that local authorities and the national government are missing out on millions of pounds that could be invested in local communities.
By branding the council tax rules as inefficient and costly, Colliers is urging policymakers to take immediate action. The consultancy believes that reforming the taxation system for holiday lets is crucial to ensuring that local and national governments can maximise their revenue streams and better support public services.
The current council tax regulations for holiday homes are under scrutiny for their financial impact. Colliers’ assessment underscores the need for reforms to close the loopholes and secure vital funds for government use. The firm’s call for change aims to create a fairer and more effective taxation system, benefiting communities across England and Wales.
Under the latest regulations, property owners who rent out their properties as holiday lets for at least 140 days a year and have them let as self-catering accommodation for a total of 70 nights or more can choose to pay business rates instead of council tax.
These owners, classified as small businesses, can claim 100% relief on business rates if their properties have a rateable value of less than £12,000. Properties with a rateable value between £12,000 and £15,000 are also eligible for relief on a sliding scale.
Despite tighter regulations introduced by the previous Tory government, Colliers property consultancy reports that substantial amounts of tax are still being avoided. Their analysis of the rating list for Cornwall, Devon, Dorset, and Somerset reveals that 23,412 properties claim 100% business rates relief, only slightly down from 23,817 the previous year.
If these 23,412 properties, which currently pay neither business rates nor council tax, were required to pay the basic council tax, local councils would gain over £55 million in revenue.
The company highlights that the problem is particularly severe in Cornwall, where 11,259 holiday let properties avoid both business rates and council tax due to their non-domestic classification. Colliers estimates that if these properties were subject to council tax, Cornwall could see an additional £26 million in revenue each year.
John Webber, Head of Business Rates at Colliers, comments: “Despite stricter measures now in place, they are still insufficient to prevent second property owners from switching to business rates, which reduces the funds local authorities can collect. While some properties have been moved back to the council tax lists, the overall situation is still inadequate.
“Second homeowners can rent their properties for just 10 weeks a year to avoid paying business rates or council tax. The high number of properties still listed for business rates indicates that current measures are not effective.”
Webber is concerned that the current policies on second homes could worsen the situation unless revised by the new Labour government.
The Conservatives’ Levelling Up and Regeneration Act allows local authorities to charge double council tax on second homes, which are defined as “furnished, for personal use but not a main residence.”
The aim of this policy is to reduce the number of second homes and make more housing available to locals. Cornwall Council plans to introduce an extra 100% council tax premium on second homes starting April 2025, with around 150 other councils also adopting similar measures.
Webber adds, “As council tax rates increase, the incentive to switch properties to the business rates list will grow. Some councils are considering raising rates by 200% or even 300%.”
Colliers estimates that in England and Wales, there are currently 79,874 holiday let properties on the business rates list eligible for 100% business rates relief. These properties, therefore, avoid paying both business rates and council tax, resulting in a loss of approximately £172 million annually for local authorities.
Colliers argues that the problem lies not with homeowners exploiting the tax break but with what they describe as “government policy” that mishandles the situation, causing issues in many coastal areas.