Councils in Gloucestershire might be deploying a 100% tax increase on second homeowners but they are missing out on millions in revenue because second home-owners are "flipping" property through a loophole to sidestep the cost.

The accusation, made by investment and property experts Colliers, comes amid business rates research from the company that local government is presiding over a "broken" business rates relief system which is collectively depriving authority coffers of £172m in their current financial year.

Against the identified trend of second home demand raising property values to prices that are consequently unaffordable for local buyers, Colliers calculates that the lost income to councils in Cornwall alone from this practice comes to £26m. 

Across the South West as a whole, the calculations set a figure of £55m in lost revenue.

Colliers said: "Local and central governments are still losing out on millions of pounds of council tax income because despite latest regulations, the current business rates system continues to give many holiday-home and second homeowners the opportunity to avoid paying the tax, provided they make their properties available to rent and rent them out for just 10 weeks of the year."

Under current regulations, owners making their properties available to rent as holiday lets for 140 days of the year and let as commercially as self-catering accommodation for short periods of 70 nights or more, can claim they are a small business. As such, the property owner can elect to pay business rates, instead of council tax.

Any such move made by owners with more than one home on their other properties in Gloucestershire allows them to avoid a hefty bill: this year, all council-tax collecting authorities in the county have signalled that from 2025 they will instigate the legislated option of a 100% increase on payable council tax for any identified additional home which is not the taxpayer's main residence.

As a small business, property owners can 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 tapering relief in line with current business rates relief policy.

Colliers added: "Although the previous government was trying, through tighter regulation, to reverse the trend of holiday homeowners "flipping" from the council tax to business rates system to avoid paying any tax, the figures are still too high."

Colliers' analysis comes in the wake of a claim earlier this year from the campaign group Action on Empty Homes which said that 207,000 homes were using this exemption and opting for business rates to avoid costlier council tax. The Big Issue reported in January that AirBnB listings had surged as landlords sought to exploit the current rules which Michael Gove announced at mandatory from April this year.

John Webber, Colliers' Head of Business Rates, said: "Although current measures in place are tighter than they have been in the past, they are just not strong enough to deter second property owners "flipping" into the business rates list and thus reducing the local authority's ability to collect funds.

"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."

Mr Webber said he fears current policy towards second homes could make the situation even worse, unless amended by the new Labour administration.

In a separate statement on the research, Colliers said it "does not blame the homeowners that take advantage of this tax break through making their properties available to let - this could be considered sensible tax planning.

"However, we do blame government policy for over-seeing this mess which inevitably leads to friction in many coastal resorts. Most second homeowners would accept the need to pay the minimum of council tax and neither need nor expect to pay either nothing or double when public services are under enormous pressure."

● Under the existing legislation of the Levelling Up and Regeneration Act, local authorities have the right to charge double council tax on second homes, which it defines as "furnished, for own personal use but not a main residence". Underlying this policy is a desire to reduce the number of second homes and free up more housing for the locals. Cornwall Council has announced it will charge an additional 100% Council Tax premium on second homes from 1 April 2025 and according to latest reports, more than 150 local authorities have also announced they will impose the inflated levy next year – a move which Punchline can confirm every authority in Gloucestershire intends to make.