Owners of second homes should be braced for a further crackdown, with Labour seeking to boost housing supply for local people.
Some second homeowners may already be paying an additional 100% on their council tax bills. But, with effect from April 2025, local authorities in England will be able to impose a second premium of 100%, meaning some second homeowners could pay triple council tax. In Wales, local authorities have been entitled to do this since April 2023.
However, as our analysis underlines, people are taking pre-emptive action to avoid this punitive regime. Increasing numbers of holiday homeowners are shifting into the business rates system, hoping to benefit from small business rates relief. Under this system, there may be no bill for a property.
A home can only qualify for holiday-let business rates if it is available for short stays totalling 140 days in the coming year. The home must also have been available in the same way for 140 days in the previous year and let out for a minimum of 70 days during that year.
Eligibility for small business rates relief depends on a property's Rateable Value (RV), which is an estimate by the government’s Valuation Office Agency of the cost to rent a premises for a year. Properties with an RV of below £12,000 qualify for a 100% discount, meaning no payment is due. If the RV is under £15,000, there is a smaller discount. But, where owners have multiple homes or businesses, small business rates relief is only enjoyed by one property.
" In Cornwall, 875 fewer homes were liable for the second home council tax premiums… But 3,120 more properties paid (or received relief on) business rates."
In England, as many as 34% more holiday homes paid (or received relief on) business rates in 2023 than in 2020. In April 2023, for example, the owners of 85,100 holiday lets claimed business rates relief - which is 21,800 more than in the same month of 2020. There was a staycation boom between 2020 and 2023, but the number of homes in England declared as a second home for council tax purposes did not alter, staying level at 263,300.
The largest increases in homes paying business rates were reported in popular second-home hotspots such as Cornwall, Dorset and Northumberland where the increases were 32%, 27% and 34%, respectively.
From next year, Bath and North East Somerset, East Devon, and North Norfolk will likely charge triple council tax on second homes, as they were some of the first to vote for the change. Between 2019 and 2023, the number of homes paying second homes council tax in these locations rose by 6%, 11% and 2%, respectively.
As our analysis also highlights, most councils imposing council tax premiums may find themselves worse off by the switching of second homes into the business rates system. In April 2023, 96% of all English holiday let properties registered for business rates fell below the £12,000 rateable value threshold. As a result, only 4% of holiday lets could be subject to a bill. This assumes each owner only has one property registered for business rates.
In Cornwall, there has been a 6% decline in second home council tax receipts since 2019. By contrast, there has been a 32% increase in the number of holiday lets liable for business rates. As a result, 875 fewer homes were liable for the second home council tax premium while 3,120 more properties became subject to business rates.
Given that second homes tend to be highly concentrated in a small number of areas, this isn’t an issue across the board. However, introducing second home council tax premiums without wider reform of the business rates system may not be the answer to curbing the number of holiday lets.
Yet, at the same time, owners will be eager to comply with the business rates criteria in order to avoid hefty council tax premiums. This will ensure that those second homes which previously stood empty for most of the year, are likely to be occupied a great deal more by visitors than in the past.