Councils in the south west of England that have increased council tax on second homes are missing out on £55m of income due to the ‘broken’ business rates system, real estate experts warn.

Around 150 local authorities have indicated they plan to charge second homeowners double or triple council tax to discourage second home ownership during a housing crisis.

However, Colliers has found that this policy is backfiring because many homeowners have responded by ‘flipping’ their properties, so they are classed as small businesses.

As small businesses they do not have to pay council tax and as holiday lets they are eligible to claim 100% tax relief on business rates.

Colliers estimate the total loss of income to government due to the system of business rates relief for holiday lets in England and Wales alone is around £172m a year.

It also analysed the rating list for Cornwall, Devon, Dorset and Somerset and found that the total number of properties claiming 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. Cornwall alone is missing out on £26m.

John Webber, head of Business Rates at Colliers, said: ‘If Cornwall Council believes “tripling” council tax on second homes is the answer to deterring second homeowners and solving the local housing crisis they are living in “cloud cuckoo land”. Offering either double or triple tax or no tax will only encourage even more people to try to flip from council tax to business rates.’