It has recently been named Britain’s “best” seaside town, with its cobbled streets, pristine beaches and bustling restaurant scene making it a jewel in the crown of the country’s coastal resorts.

But people in Tenby claim the second home tax in the area is driving people away from Wales’ most popular tourist spot, and that second home owners are selling up at an alarming rate.

They say unless Pembrokeshire county council rethinks the county’s 200% second home tax premium, Tenby will begin to see a decline in trade. Since 2023, councils in Wales have been able to raise the council tax premium on second homes by up to 300%.

After the Welsh Government removed its 100% premium cap and allowed local authorities to set their own, Pembrokeshire county council voted for the 200% premium earlier this year. In Tenby alone around a quarter of its housing stock are second homes or holiday lets, WalesOnline reports.

There are loopholes for second home owners to avoid the heavy tax. Holiday let owners in Wales who want to qualify for cheaper business rates instead of pricey council tax must commercially let the property for 182 days of the year (the previous threshold was 70 days). If second home owners fail to fulfil that threshold they must pay the council tax premium, costing them thousands of pounds in the process.

Second home owners can also swerve council tax for a year by putting their homes up for sale. Pembrokeshire-based property expert Carol Peett of West Wales Property Finders says she has never known as many properties up for sale in Pembrokeshire as there are now.

“Not all of these people are big business people,” she explained. “They are pensioners who have a holiday let which they rely on to boost their income. They’re farmers encouraged to diversify from farming [who] have developed an outbuilding which they rely on. They are people who’ve had their parents die and they want to keep the home and one day live in it and in the meantime they’re letting it out. Of course there is a portion who would be able to pay the premium comfortably, but certainly not all of them.

“Many are putting them on the market and so they’re sitting on the market empty and all those tourists who would be going into Tenby and elsewhere are not here this summer. It’s having a huge impact on businesses. It’s like they’ve killed the goose that laid the golden egg for tourism.

“It’s also worth mentioning most of these second homes are totally unsuitable and unaffordable for local people trying to get on the property ladder. I’m desperate for young families and young people in Pembrokeshire to be able to stay here. But if the Welsh Government and the local authority want that to happen they need to find other solutions, like building new houses for local people only with local restrictions, and ensuring nothing under £250,000, for example, should be a second home.”

Earlier this year a letter signed by members of a Pembrokeshire council tax premium support group read: “In April when most of us received our council tax bills with their grossly inflated rates most of us had a bill of £5,000 to over £12,000 for 2024/25. This is unaffordable.”

The number of second homes and self-catering holiday properties in the county has declined year-on-year, county councillors heard at a full council meeting in July and that the number of second homes up for sale had increased by 97 in the last 12 months – a rise of 255%. The council is now said to be taking a second look at the council tax premium for second homes and a decision on future council tax premiums would be made by full council at an October meeting.

However, many people have praised the Welsh Government and councils for the council tax policy, which is aimed at trying to stop wealthy people having a monopoly on the housing market in Wales’ seaside resorts and trying to improve the opportunities of local people to get on the property ladder. But others say the premiums have gone too far and are driving away people who make significant contributions to local economies.

Matthew Ronowitz, who has owned restaurants in the seaside town for nearly 20 years, says he employs 70 people all year round and can only do so because there are enough second home owners in the area.

“The second home owners and the tourists who they let their homes to tend to be the ones who spend the money and the town relies on them,” he said.

“There are now a massive amount of houses on the market in Tenby because second home owners are selling up over this. We’ve relied on second home owners in Tenby for many years. They come from Cardiff or further away. They tend to be middle-aged to older couples and they are the reason Tenby has become a 12-month-a-year destination.

“When I first came to Tenby we would go very quiet in October and it wouldn’t be busy again until the spring. Now I employ 70 people in the town and I can employ them all-year-round because of second home owners. They come down and use their properties throughout the autumn and winter and then as you get to the summer they let them out. That isn’t happening so much now. If they don’t reassess it soon we could see this having a real impact on the town’s general trade across the year.”

However, others say it isn’t typical for second home owners to use their holiday home all year round and second homes often sit empty in parts of Wales.

Jeremy Cargill, who runs Southcliff Guest House bed and breakfast in Tenby, which was recently named the “best” seaside town in Britain, said it hasn’t been one of his better summers and that it has been quieter than recent years.

“I have found this summer, especially, people will wait until the last minute to see if the prices change,” he said.

“They also seem to be going abroad for cheaper holidays. The clientele has certainly changed. You see fewer families. We don’t tend to get very many families at all. People have come in for day trips but they don’t tend to be staying in Tenby overnight so much compared to previous years. It used to be a big change when the summer holidays started in terms of clientele changing but that didn’t happen this year.”

Mr Ronowitz said second home owners are usually happy to spend their money in the town, which helps restaurants which might not survive elsewhere stay afloat in Tenby.

“When it comes to bills it’s the same story in Tenby as it is everywhere else,” he said.

“The rent that the restaurants have to pay is high across the board and rent in Tenby is higher than most places. To get people to work for you in this trade at the moment you have to pay over the odds. Businesses in Tenby seem to be surviving at the moment.”