Holiday Let Tax and the Second Home Council Tax Premium: A £5,984 Annual Hit?
As if a proposed holiday tax wasn’t enough, there’s now a suggestion that holiday homes could be reclassified as second homes. In this article, Zee runs through why that matters for anyone running a holiday let, what the combined cost could look like, and why it could push many owners from breaking even to losing money.
The Proposed 5% Holiday Rental Tax
A few weeks ago, Zee covered the proposed holiday tax: a levy of up to 5% charged on nightly rents. As Zee points out, once a tax like this starts, it rarely stops – and the government now appears to feel it has room to go further, having met little push back.
Here’s what the 5% means in practice, using a simple example:
| Item | Amount |
|---|---|
| Nightly rate | £100 |
| Nights rented per month | 20 |
| Monthly rental income | £2,000 |
| Annual gross rent | £24,000 |
| 5% holiday tax | £100 per month (£1,200 per year) |
Could Council Tax Double for Holiday Homes?
The second part is what has been more recently announced: the idea that holiday lets could be classified as second homes. That might not sound too bad, but Zee explains why it is. Across the country, councils can charge a 100% surcharge on council tax for second homes, depending on the band.
Taking a Band D property as the usual reference point, the average council tax is about £2,392 per year. With a 100% surcharge, that doubles to £4,784. For anyone trying to run a nightly rental business to help with the cost of living, that’s a significant new cost.
The Potential £5,984 Annual Tax Hit
Adding the two together, here’s the annual total Zee illustrates:
| Item | Annual Amount |
|---|---|
| Holiday tax (5% of £24,000 gross rent) | £1,200 |
| Council tax with 100% second home surcharge (2 × £2,392 average Band D) | £4,784 |
| Total potential additional cost | £5,984 |
That works out at roughly £500 a month in additional taxes that holiday let owners haven’t had to pay until now. The council tax element varies by the size of the property and the council involved, and Zee expects those charges to rise as councils see the income coming in.
It’s also worth remembering that this excludes the tax advantages that were removed for holiday rentals on 31 March 2025. Owners could end up losing those advantages, paying a 5% tax on nightly rents, and facing a 100% council tax surcharge – taking them from probably breaking even, and covering a bit of extra cost, to being out of pocket.
Could These Taxes Cost Even More?
There are rumours that owners may not even be allowed to offset these new taxes against their rental income. If that’s the case, the true cost would be higher than £5,984, because the tax would compound on top of what’s already being paid.
Zee’s concern is that if everybody is taxed, people simply stop doing it – and if they stop, the economy is hurt. He believes this needs to be raised with politicians so that they understand the impact before these changes are made.
Protect Your Holiday Let Returns with GoldHouse Accounting
With new levies, council tax surcharges, and reduced tax advantages all squeezing holiday lets, understanding your true after-tax position matters more than ever. At GoldHouse Accounting, our property accountants and wealth management consultants help holiday let owners review their numbers, plan ahead of proposed changes, and decide on the right structure for their property. Get in touch to find out where you stand.
This article reflects our personal views and analysis based on proposals reported at the time of recording. The figures are illustrative, using rounded examples and an average Band D council tax figure; actual amounts vary by property and council. None of the changes discussed have been confirmed as government policy. This is not personalised tax advice, speak to a qualified tax advisor about how any proposed changes could affect your specific circumstances.
