Finest Retreats models impact of possible holiday-let tax change

UK: Reclassifying qualifying holiday lets as second homes could reduce the annual profit of an average managed property by 96 per cent, according to modelling published by Finest Retreats.

The analysis comes amid reports that the Treasury is reviewing the tax treatment of short-term rental accommodation ahead of the Budget on 28 October.

No policy to reclassify holiday lets has been formally announced, and the government has not published details of how any potential change would operate.

Qualifying self-catering accommodation in England is currently assessed for business rates rather than council tax if it was available commercially for at least 140 nights and let for at least 70 nights during the previous 12 months. Properties may qualify for Small Business Rate Relief depending on their rateable value.

Finest Retreats modelled what could happen if a typical managed holiday let were moved onto council tax and charged a second-home premium of 100 per cent.

Under that scenario, the property would face an annual council tax bill of £4,784, reducing its profit from £4,976 to £192 before mortgage costs.

The calculation is illustrative rather than a forecast for every holiday let because council tax bands, property values and second-home premiums differ between local authorities.

Finest Retreats also estimated that an average three-bedroom managed holiday let contributes £10,178 to the economy each year before guest spending is included.

The figure covers agency fees, utilities, insurance, housekeeping wages, property maintenance, window cleaning and waste collection. Estimated guest spending adds a further £7,448, bringing the total annual contribution to £17,626.

The company said this was seven times the contribution made by a second home.

Richard Bond, owner of Finest Retreats, said: “A holiday let is a working small business that provides work for local people and brings visitors into the community every week.”

He added that reclassifying commercially operated holiday lets as second homes could lead some owners to stop letting their properties, affecting housekeepers, tradespeople and tourism businesses.

The analysis should be treated as company modelling rather than independent economic research. Although the accompanying release describes it as updated analysis, Finest Retreats’ published methodology states that the underlying research was originally compiled in 2022 using ONS and VisitBritain spending data from 2019 and company booking data from 2021–22. owners.finestretreats.co.uk

The government abolished the separate Furnished Holiday Lettings tax regime in April 2025, meaning income from holiday accommodation is now generally treated under the standard rules for residential landlords. This is separate from the system determining whether a property pays business rates or council tax. GOV.UK

Highlights

• Finest Retreats has modelled the effect of reclassifying holiday lets as second homes.
• The company estimates that council tax could reduce annual profit from £4,976 to £192 in its example.
• The calculation assumes a £4,784 council tax bill including a 100 per cent second-home premium.
• No holiday-let reclassification policy has been formally announced by the government.
• Finest Retreats estimates that a managed three-bedroom holiday let contributes £10,178 annually before guest spending.
• Its estimated contribution rises to £17,626 when guest expenditure is included.
• Council tax liabilities and second-home premiums vary between local authorities.
• The economic contribution research uses some data originally collected between 2019 and 2022.