Holiday Let Business Rates vs Council Tax 2026: A UK Guide
How UK furnished holiday lets are rated for business rates versus council tax in 2026/27, the FHL tax changes, profit tax and what you actually pay.
Quick answer
A UK furnished holiday let is assessed for business rates instead of council tax only if it meets the official availability and actual-letting tests for self-catering accommodation. If it does, the Valuation Office Agency sets a rateable value and small business rates relief may reduce the bill to little or nothing. If it does not, it stays in council tax, possibly with a second-home premium. Separately, the profit is taxed as ordinary property income.
This guide explains both halves: the local tax on the property (business rates versus council tax), and the income and capital taxes you pay on running and selling it. The two are decided by different bodies under different rules, so it helps to treat them separately.
Business rates or council tax: how the property is classified
Every let property sits on one of two lists. Long-term homes and second homes go on the council tax valuation list. Genuine self-catering holiday accommodation can instead go on the non-domestic (business) rating list.
In England, the established test is broadly that the property must be available to let commercially as self-catering accommodation for short periods totalling at least 140 days in the coming year, and must actually have been let for at least 70 days in the previous year. Wales applies its own, stricter occupancy thresholds, and Scotland has its own self-catering rules through the local assessor. Because these thresholds are set by the relevant administration and have been tightened in recent years, confirm the current numbers on gov.uk or with your assessor before relying on them.
Why the classification matters financially
If the property qualifies for business rates and has a low rateable value, small business rates relief may reduce the bill substantially, sometimes to zero on a single small property. That can be cheaper than council tax, especially where a local authority charges a second-home or empty-property premium on council tax. The relief thresholds and percentages are set nationally and adjust over time, so check the live figures rather than assuming a saving.
If the property does not meet the occupancy tests, it remains in council tax. To estimate that side of the bill, including any local premium, use the
Council Tax Calculator
Look up council tax bands and estimate your annual council tax bill.
Open Council Tax calculatorThe big change: FHL regime abolished from April 2025
For years, furnished holiday lets enjoyed a favourable tax regime separate from ordinary lettings. That regime was abolished with effect from April 2025. From 2025/26 onwards, and therefore throughout the 2026/27 tax year covered here, a holiday let is taxed as part of your ordinary UK or overseas property business.
The practical consequences are significant:
| Feature | Old FHL regime | From April 2025 |
|---|---|---|
| Mortgage interest | Full deduction from profit | Basic-rate (20%) tax credit only |
| Capital allowances | Available on furniture and fittings | Restricted; replacement-of-items relief instead |
| Profits and pensions | Counted as relevant earnings | No longer relevant earnings |
| CGT business reliefs | Could apply (rollover, BADR) | Generally no longer apply |
The mortgage interest change is the one that hurts most. Higher-rate and additional-rate owners used to deduct all interest before tax. Now interest is relieved only as a 20% credit, so a 40% taxpayer effectively loses relief on the gap. For a leveraged property this can turn a modest accounting profit into a thin or negative cash position once tax is paid.
How holiday let profit is taxed in 2026/27
Rental profit is income on top of everything else you earn. It is added to your other income and taxed at your marginal rate.
- In England, Wales and Northern Ireland: 20% basic, 40% higher, 45% additional, with the personal allowance of GBP 12,570 applied first.
- In Scotland: a six-band system from 19% starter through to 48% top rate.
- The personal allowance tapers away above GBP 100,000 of income, creating a 60% effective band between GBP 100,000 and GBP 125,140.
Rental profit is not subject to National Insurance, because ordinary letting is not treated as a trade. That is one of the few remaining advantages over genuine self-employment.
If your gross property income is GBP 1,000 or less you can use the property allowance and report nothing. If it is a little more, you can choose to deduct the GBP 1,000 allowance instead of your actual expenses, whichever gives the lower profit. Above that, you deduct allowable running costs: cleaning, letting agent fees, insurance, utilities, repairs and the replacement of domestic items.
To model the marginal tax on a given profit, run the numbers through the
Self-Employed Tax Calculator
Calculate income tax, Class 2 and Class 4 National Insurance for self-employed and sole traders for 2025/26.
Open Self-Employed Tax calculatorA simple worked illustration
Suppose a higher-rate owner has GBP 18,000 of holiday let income, GBP 6,000 of running costs and GBP 5,000 of mortgage interest. Profit before interest is GBP 12,000. Under the new rules, interest is not deducted from profit; instead it generates a 20% credit.
| Step | Amount |
|---|---|
| Income | GBP 18,000 |
| Less running costs | GBP 6,000 |
| Taxable profit | GBP 12,000 |
| Tax at 40% | GBP 4,800 |
| Less 20% interest credit on GBP 5,000 | GBP 1,000 |
| Tax due | GBP 3,800 |
Under the old FHL rules the interest would have been deducted in full, leaving GBP 7,000 of profit taxed at 40%, or GBP 2,800. The same property now costs GBP 1,000 more in tax. This is the single most important consequence of the reform for borrowers.
Capital gains when you sell
When you sell a let property you pay capital gains tax on the gain after costs and the GBP 3,000 annual exempt amount. Residential property gains are taxed at 18% to the extent they fall within your remaining basic-rate band, and 24% above it.
Crucially, the old FHL capital gains reliefs no longer apply. Holiday lets previously could access rollover relief and the 18% Business Asset Disposal Relief rate on disposal. With the regime gone, a straightforward holiday let sale is taxed like any other second property. There are transitional points around the abolition date, so take advice before a disposal. You can sketch the headline gain with the
Capital Gains Tax Calculator
Calculate Capital Gains Tax on property, shares and other assets for 2025/26.
Open Capital Gains Tax calculatorCouncil tax classification: decided by the VOA or assessor, paid annually, can include a second-home premium. Business rates classification: needs the occupancy tests met, set on rateable value, may be reduced by small business rates relief.
VAT, structure and other traps
Holiday let income is standard-rated for VAT, unlike exempt long residential lets. You must register once taxable turnover crosses GBP 90,000 over a rolling 12 months. A single cottage rarely reaches that, but owners with several lets, or a let plus another VATable business, can be pulled over the line. Use the
VAT Calculator
Add or remove VAT from any amount. Supports 20%, 5% and 0% UK VAT rates.
Open VAT calculatorSome owners hold property through a company to keep mortgage interest fully deductible against profits taxed at Corporation Tax. That can make sense for highly geared portfolios, where the 19% small-profits rate or marginal relief beats personal higher rates, but it brings extra cost, double taxation on extracting profit, and stamp tax on transfer. The dividend rates you would pay to extract money rose for 2026/27 to 10.75%, 35.75% and 39.35% above the GBP 500 allowance, which narrows the benefit. This is a decision to take with an accountant, not a default.
Practical checklist
- Confirm which list your property is on and whether you meet the current occupancy tests for your nation.
- If aiming for business rates, keep dated booking records as evidence for the VOA or assessor.
- Recalculate your tax under the post-FHL rules, especially the mortgage interest credit.
- Set aside cash for capital gains tax in advance of any sale, now that the old reliefs are gone.
- Check your VAT position if you own more than one let.
- Review your mortgage terms and insurance for holiday letting.
The headline message for 2026/27 is that holiday lets are now ordinary property businesses for tax, while still being able to access business rates for the local charge if they are genuinely commercial. The local rates question and the profit tax question are separate, and you need to get both right.
This article is general information, not personal tax advice. Confirm current thresholds on gov.uk and speak to a qualified accountant before acting.
Frequently asked questions
Do holiday lets pay business rates or council tax?
It depends on availability and use. A self-catering property in England that is available to let for short periods of at least 140 days in the coming year and was actually let for at least 70 days in the previous year is normally assessed for business rates rather than council tax. Properties that do not meet those occupancy tests, or that are largely for personal use, stay in council tax. The Valuation Office Agency decides which list a property sits on, not the owner.
Is small business rates relief available for a holiday let?
Often, yes. If your property has a low rateable value you may qualify for small business rates relief, which can reduce or even remove the bill on a single small property. Relief is applied by your local council using the rateable value set by the Valuation Office Agency. The exact thresholds and percentages are set nationally and change periodically, so confirm current figures on gov.uk before relying on a saving.
What happened to the furnished holiday lettings tax regime?
The special furnished holiday lettings (FHL) tax rules were abolished from April 2025. Holiday lets are now taxed as an ordinary property business. That means mortgage interest is relieved as a basic-rate tax credit rather than a full deduction, profits no longer count as relevant earnings for pension purposes, and the old capital gains reliefs that applied to FHLs no longer apply. You still report rental profit through Self Assessment.
Can I still claim capital allowances on furniture and equipment?
Capital allowances on plant and machinery such as furniture, white goods and equipment used in a let property are restricted now that the FHL regime has ended. For ordinary residential lettings, the usual route is replacement of domestic items relief rather than full capital allowances. The position is technical and depends on how the property is used, so take advice from an accountant before claiming.
How is the profit from a holiday let taxed in 2026/27?
Rental profit is added to your other income and taxed at your marginal Income Tax rate: 20%, 40% or 45% in England, Wales and Northern Ireland, with different bands in Scotland. The personal allowance is GBP 12,570. You can use the GBP 1,000 property allowance instead of expenses if your income is small. Rental profit is not subject to National Insurance because letting is not normally treated as a trade.
Will I pay capital gains tax when I sell a holiday let?
Yes, gains on a let property are subject to capital gains tax. Residential property gains are taxed at 18% within your basic-rate band and 24% above it, after deducting the GBP 3,000 annual exempt amount. Now that the FHL regime has ended, the old business reliefs that could have cut this to the Business Asset Disposal Relief rate of 18% generally no longer apply to holiday lets.
Do I need to register for VAT on my holiday let income?
Holiday let income is standard-rated for VAT, unlike long residential lets which are exempt. You must register for VAT once your taxable turnover exceeds the GBP 90,000 threshold over a rolling 12 months. Most single holiday lets stay well below this, but owners with several properties or other VATable businesses can be caught. Once registered you charge 20% VAT on the let and can reclaim VAT on costs.
Does moving to business rates affect my mortgage?
It can. Many residential and standard buy-to-let mortgages do not permit short-term holiday letting, so you may need a specialist holiday let mortgage. Switching the property from council tax to business rates also signals commercial use to a lender. Always check your mortgage terms before letting, and tell your lender, because letting in breach of your conditions can put the loan at risk.
How do I get my holiday let moved onto the business rates list?
You contact the Valuation Office Agency in England and Wales, or the local assessor in Scotland, and provide evidence that the property meets the availability and actual-letting tests for self-catering accommodation. The VOA then assesses a rateable value and removes the property from the council tax list. Keep booking records, because you must be able to prove the property was let for the required number of nights.
Is council tax or business rates cheaper for a holiday let?
There is no universal answer. With small business rates relief a low-value property can end up paying little or nothing, which is often cheaper than council tax plus any second-home premium. A higher-value property without relief can pay more under business rates. You must also actually meet the occupancy tests to qualify, so the decision is partly about how genuinely commercial the letting is.
Try the calculators
Council Tax Calculator
Look up council tax bands and estimate your annual council tax bill.
Self-Employed Tax Calculator
Calculate income tax, Class 2 and Class 4 National Insurance for self-employed and sole traders for 2025/26.
Capital Gains Tax Calculator
Calculate Capital Gains Tax on property, shares and other assets for 2025/26.
Related reading
Second Home Council Tax Premium: 2026 Owner's Guide
How the second home council tax premium works in 2026/27, who pays the extra charge, the exemptions and discounts, plus the wider tax bill on a second property.
Rent a Room Scheme 2026: GBP 7,500 Tax-Free Lodger Income
How the Rent a Room Scheme works in 2026/27: the GBP 7,500 tax-free threshold, who qualifies, how to opt in, and when paying tax the normal way is better.
Holiday Let: Business Rates or Council Tax? The 2026 Rules Explained
Furnished holiday lets can be liable for business rates instead of Council Tax, but only if they meet specific letting-day thresholds. How the rules work in 2026.