Councils charging double council tax on second homes may be pushing more owners into the holiday-let tax regime instead of raising extra revenue, according to new analysis from Colliers.

The property adviser said 85% of local authorities in England and 91% in Wales have now adopted higher council tax charges for second homes. But it argues the policy is also encouraging owners to reclassify properties as furnished holiday lets and move into the business rates system, where many can claim full relief.

Holiday-let relief rises as councils raise second-home tax

Colliers said 77,241 holiday-let properties across England and Wales are now eligible for 100% business rates relief in 2026-27, up from 73,838 a year earlier. Under the current business rates rules for self-catering and holiday lets, owners in England can move into the business rates system if a property is available for short-term letting for 140 days a year and actually let for at least 70 nights.

Where the rateable value sits below £12,000, that can mean paying neither business rates nor council tax. The South West remains a key pressure point. Colliers said 22,970 holiday-let properties in Cornwall, Devon, Dorset and Somerset are now claiming full relief, up from 21,678 last year.

John Webber, head of business rates at Colliers, said the figures showed the policy was “backfiring” by encouraging more owners to flip into the business rates system once they meet the qualifying rules.

He said many owners will simply respond to the tax rules in front of them, leaving ministers and councils with less revenue than intended.

The warning matters for landlords because the tax gap between mainstream renting, second-home ownership and short-term letting is becoming more distorted. Where local demand and planning rules allow, some owners may see holiday lets as the easier route – especially if the tax burden on a second home rises faster than the compliance burden attached to short-term use.

This follows Residential Landlord’s report on councils pushing for tighter short-let controls, which showed policymakers trying to curb the spread of holiday accommodation in pressured areas. It also fits with later coverage of squeezed holiday-let returns, underlining how tax treatment is becoming just as important as nightly income.

Why landlords should watch the tax distortion

For landlords and investors, this is less about sympathy for second-home owners and more about market incentives. If the tax system makes it cheaper to run a property as a short-let than to keep it in conventional housing use, some stock will move accordingly. That is the opposite of what many councils say they want in areas already struggling with rental supply.

There is also a policy risk here. Once a loophole becomes politically visible, governments usually move to close it. Investors tempted by the current rules should be careful about assuming the relief structure will stay this generous if councils conclude they are losing revenue.

The broader lesson is that poorly aligned housing taxes often shift behaviour faster than they solve problems. When one set of rules penalises a second home while another offers full relief for a holiday let, owners do not need much encouragement to change category.

Opinion

Ministers and councils cannot keep talking about housing shortages while leaving this kind of tax mismatch in place. If they want more homes available for long-term occupation, the tax treatment of second homes and holiday lets needs to pull in the same direction. Right now, it does not.