From 1 April 2025, a 100% council tax premium is applied and is payable in addition to the standard council tax liability in respect of ‘second home’ dwellings which meet the following conditions:
- There is no one living in the property as their sole or main residence; and
- The dwelling is substantially furnished.
There are various exceptions to the second homes premium, but the focus of this article is where one’s second home is also let as holiday accommodation.
Understanding Business Rates for Holiday Accommodation
This change in council tax policy has made it even more important for property owners to understand the alternatives available to them. If you own a second home or holiday property in England, you may be able to reduce your tax liability by ‘switching’ from council tax to business rates, provided your property qualifies as furnished holiday accommodation.
This shift is not impacted by the Government’s abolition of the furnished holiday lettings (FHL) tax regime for other tax purposes. Business rates are entirely separate, and they continue to offer a valuable way to reduce local tax burdens on qualifying properties.
Council Tax versus Business Rates
Council tax is charged on residential properties, including second homes and holiday cottages not used commercially. But if you let your property as a furnished holiday let, which is available to let for at least 140 nights a year and actually let for at least 70 nights, you may be eligible to pay business rates instead.
Business rates apply to properties used for commercial purposes. Once your property meets the letting criteria, it may be valued for business rates rather than council tax, which can lead to meaningful tax savings.
Why Business Rates Can Be Better
If your property qualifies for business rates, you may also be eligible for Small Business Rates Relief (SBRR), depending on the rateable value of the property:
- Properties with a rateable value under £12,000 may qualify for 100% relief, meaning no business rates are payable; and
- Those with a rateable value between £12,001 and £15,000 can receive partial relief on a sliding scale.
This relief can be particularly beneficial if you own more than one smaller property, as each may qualify separately for SBRR. In many cases, this results in a significantly lower local tax bill than if you were paying council tax, especially when the second homes premium is added.
Missed Out? You Might Be Owed a Refund
If your property met the conditions for business rates in previous years but you’ve been paying council tax, you may be entitled to a backdated refund, potentially for up to six years. To make a claim, you’ll need to show that the property qualified during that period, using evidence such as booking records, marketing listings, and relevant tax filings.
What Should You Do Next?
If you own a second home, holiday let, or short-term rental property, now is a good time to review whether you’re paying the right kind of local tax. The potential savings, both going forward and retrospectively, could be significant.
We recommend speaking with your property adviser, or local authority to assess your eligibility and to explore the next steps.
In many cases, a simple change in classification from council tax to business rates could make your holiday property a much more cost-effective investment.