A surge in holiday let registrations for business rates has exposed a significant tax loophole, potentially costing local authorities millions as second home owners circumvent new second home charges.
Official data reveals a dramatic increase in holiday lets registered for business rates, which jumped from 63,000 in 2020 to 78,000 by March 2024 in England alone. This 24% rise directly coincides with councils introducing double council tax charges for non-primary residences, suggesting coordinated tax avoidance strategies.
The Valuation Office Agency, overwhelmed by applications, now requires up to six months to process business rate registrations and has advised applicants not to chase decisions during this period.
Financial Impact of the Loophole
In Cornwall, where holiday lets proliferate, a typical Band D property faces council tax increases from £2,459.92 to £4,919.84 annually under the new premium. However, properties qualifying for business rates—particularly those eligible for small business relief—can reduce their tax liability to zero.
Estate agent Colliers estimates 73,838 holiday lets across England and Wales now benefit from 100% business rate relief, representing £334 million in lost council tax revenue annually. This figure is expected to rise as more property owners discover the loophole.
Business Rate Requirements
To qualify for business rates in England, holiday lets must be available for rental at least 140 nights per year and actually let for at least 70 nights. Properties with rateable values below £15,000 can claim complete small business relief, effectively eliminating tax obligations.
These requirements, while tighter than previous regulations that only required registration intent, remain insufficient to prevent widespread tax avoidance according to property experts.
Political and Industry Response
Liberal Democrat MP Ben Maguire has proposed an “Airbnb bill” to close the business rates loophole and prevent council tax avoidance. The proposal reflects growing political concern about lost local authority revenue.
However, holiday let industry leaders defend the practice. Alexander Lyakhotskiy of Pass the Keys argues that genuine short-term rental businesses deserve different treatment from empty second homes, emphasising their role in supporting local tourism and employment.
Government Revenue Loss
Property expert John Webber warns that allowing councils to charge double council tax has backfired by incentivising more property owners to exploit business rates. Rather than generating additional revenue, the policy may be reducing overall tax collection as savvy owners switch to zero-liability business classifications.
The HomeOwners Alliance reports increasing numbers of second home owners registering properties as businesses specifically to access small business relief rather than pay premium council tax rates.
System Vulnerability
The current framework creates perverse incentives where property owners can legally eliminate tax obligations by meeting minimal rental requirements. This undermines both the second home premium’s revenue generation goals and its intended purpose of discouraging property speculation.
Government, ironically, now faces reduced funding capacity precisely when they most need resources to address housing shortages and infrastructure pressures.