A growing number of second-home owners are reclassifying their properties as holiday lets to sidestep council tax surcharges, new research from property consultancy Colliers shows. The data points to a structural flaw in the policy: the surcharge is not generating extra revenue. It is redirecting behaviour.
The loophole and how it works
Since April 2025, some 85% of local authorities in England and 91% in Wales charge up to a 100% council tax surcharge on second homes, according to Colliers. The surcharge was designed to discourage second-home ownership and free up housing for local residents.
Current rules in England allow owners who make their property available to let for at least 140 days per year - and actually let it commercially for at least 70 nights - to register it as self-catering accommodation. That classification moves the property from council tax into business rates (a tax on non-domestic properties).
Once in the business rates system, owners with a rateable value (the assessed annual rental value used to calculate the tax) below £12,000 can claim 100% small business rates relief. The result is a nil liability: no council tax, no business rates. Owners with rateable values between £12,000 and £15,000 receive partial relief on a sliding scale.
Wales applies a tighter test. A property must be available for at least 252 days and actually let for at least 182 days within a 12-month period, per Colliers.
The numbers are pointing to a widening trend
The year-on-year comparison is clear. The number of holiday let properties eligible for full business rates relief has risen 4.4%, from 73,838 to 77,241, according to Colliers data. Colliers estimates UK councils are losing approximately £383m per year as a direct result of this reclassification trend.
The South West of England shows the sharpest regional concentration. Colliers found 22,970 holiday let properties in Cornwall, Devon, Dorset and Somerset are currently claiming full relief, up from 21,678 the previous year. If those properties paid council tax at the second-home surcharge rate, local authorities in those four counties would collect an additional £119m annually, Colliers calculates.
Cornwall alone accounts for 11,450 properties in this position, up from 10,731 year-on-year. Colliers puts the annual revenue loss to Cornwall at £59m, which it says could have generated over £180m across five years. North Yorkshire records 5,910 properties in the nil-liability bracket, representing an estimated £30m in lost council revenue, per Colliers.
A system producing extreme outcomes
John Webber, head of business rates at Colliers, described the current structure as producing "either double taxation or no taxation at all" - an outcome he argued distorts behaviour and undermines local authority finances.
Colliers is calling for a fundamental review of how business rates and council tax interact, with the aim of closing the reclassification route and establishing a consistent liability for property owners regardless of letting activity.
The underlying picture, the data shows, is a policy that has accelerated the very trend it sought to reverse. The gap between a 100% council tax surcharge and a nil business rates bill is wide enough that the financial incentive to reclassify is, for many owners who already let commercially, straightforward to act on.
