Local and central governments are missing out on hundreds of millions of pounds in revenue because of tax relief offered to holiday-home and second homeowners, according to Colliers.

The agency estimates that the total loss to public funds due to the system of business rates relief for holiday lets in England and Wales alone is now around £172m.

Under latest regulations, property owners who make their properties available to rent as holiday lets for 140 days of the year, and let them as commercially as self-catering accommodation for short periods of 70 nights or more, can claim they are a small business and as such 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 in line with the current business rates relief policy.

Colliers said that although the previous government was trying, through tighter regulation, to reverse the trend of second homeowners “flipping” from the council tax to business rates system to avoid paying any tax, the figures are still too high. 

The agency analysed the rating list for the Southwest of England (Cornwall, Devon, Dorset and Somerset) and found that the total number of properties on the list that claim 100% business rates is 23,412, only slightly down from 23,817 last year. 

If these 23,412 properties which currently pay neither business rates or council tax paid basic council tax, the local councils would benefit by over £55m or more, according to Colliers.

John Webber, head of business rates at Colliers, said: “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. 

Colliers also stressed that it does not blame the homeowners that take advantage of the tax break through making their properties available to let. 

Webber added: “Politicians bicker about the lack of social housing in places like Cornwall and portray people buying second homes as the villains. Yet if Cornwall Council had been able to charge holiday let owners at least the same as a council taxpayer they would have received over £100m of extra income in the last four years alone, which they could have spent on building affordable housing in the county.  

“The problem is not second homeowners. It is politicians failing to understand the issues and having the courage to do something about it.”

“Threatening homeowners with punitive council tax rises is not going to solve the issue long term either.”