Since April 2025, councils have had the power to charge a 100% premium on second homes, effectively doubling council tax bills for owners. The policy was intended to discourage second-home ownership, especially in areas where holiday lets are seen as locking locals out of the housing market.
One way many holiday-let owners have avoided the additional tax is by switching their properties into the business rates system. If a holiday let has a rateable value of £12,000 or less, it qualifies for Small Business Rates Relief (SBRR), which can reduce the tax bill to zero. While there are exceptions, such as owners with multiple properties, this relief applies to a large share of holiday lets.
The premium was proposed in 2024 but didn’t take effect until April 2025, giving owners time to react. By mid-2024, we saw a wave of properties moving to business rates. However, this trend hasn’t lasted. In fact our analysis reveals that the number of holiday lets paying business rates has fallen by 15% in England in the year to April 2025.
It’s not that owners have stopped switching to business rates since the surcharge. But more likely the decline reflects two competing effects: the switching to business rates to avoid the council tax premium and homeowners exiting the holiday-let market altogether. The second effect appears to be winning out.
Coinciding with the introduction of the council tax premium, the abolition of the Furnished Holiday Let (FHL) tax regime in April 2025 removed significant benefits, including full mortgage interest relief, capital allowances on furnishings, and access to business-style capital gains tax reliefs.
FHL rules were stricter than those for SBRR - for example, properties had to be available to the public for at least 210 days a year, compared with just 140 days under SBRR. As a result, not every holiday let qualified for FHL, so the impact of its removal has varied.
Homes that previously enjoyed these tax breaks may have reconsidered their position in the holiday-let market. With the tax breaks dampening profits, some holiday-let owners have left the market altogether, reflected in the decline in holiday lets paying business rates. Unsurprisingly, it’s within these traditional coastal holiday hotspots such as Cornwall, Devon, and coastal areas, where the fall in holiday lets paying business rates has been highest.
