Double Council Tax under the Levelling-up and Regeneration Act 2023: top tips for professional short-term rental operators

Effective from 1 April 2025, local councils in England have new discretionary powers to levy a 100% Council Tax premium on second homes under the Levelling-up and Regeneration Act 2023 (the Act) (the Premium).

While short-term rentals (STRs) contribute significantly to local economies through tourism spend, employment, and regeneration, this measure forms part of a wider governmental push to address perceived housing shortages and rebalance communities affected by second-home ownership and holiday letting. However, the policy raises questions about fairness, proportionality, and its potential unintended consequences for professional STR operators.

Background and policy intent

The Department for Levelling Up, Housing and Communities estimates around 250,000 properties in England are registered as second homes. Against a backdrop of funding pressures, the ability for councils to raise extra revenue via the Premium is politically and financially attractive.

The Government’s stated aims are twofold:

1. Revenue generation: to bolster local authority budgets; and
2. Housing supply: to discourage properties being held for occasional use and encourage long-term letting or owner-occupation.

Before the Act, councils already had powers under Section 11B of the Local Government Finance Act 1992 to charge additional Council Tax on long-term empty homes (defined as unoccupied and substantially unfurnished). The permitted surcharges were:

• Up to 100% for homes empty between two and five years;
• Up to 200% after five years; and
• Up to 300% after ten years.

This regime, however, excluded furnished properties such as second homes or holiday lets, which continued to pay the standard rate despite infrequent use. Policymakers viewed this as a loophole undermining housing policy objectives.

Key changes introduced by the Act

Section 80 of the Act extended councils’ powers to apply premiums to both empty dwellings and second homes:

• From 1 April 2024: the qualifying period for an empty homes premium reduced from two years to one.
• From 1 April 2025: councils may apply up to a 100% premium on second homes, effectively doubling Council Tax liability.

Government guidance defines a ‘second home’ as ‘a substantially furnished dwelling that is not anyone’s sole or main residence’.

Key points from the guidance:

• The decision to apply a Premium must be made at least 12 months before the relevant financial year (though a failure to give notice does not invalidate the charge).
• The Premium is discretionary, enabling councils to set any level up to 100%.
• Certain statutory exemptions apply (e.g. properties undergoing probate) generally apply to professional STR operators.

A shift to the business rates regime

In response, many STR operators are considering reclassifying their properties under the business rates regime. Doing so may mitigate exposure to the Premium, but requires careful review of legal, operational, and contractual obligations.

Eligibility for business rates

Since 1 April 2023, the Valuation Office Agency (VOA) applies the following criteria for a property to be assessed for business rates:

• Available to let for at least 140 days in a 12-month period;
• Actually let for at least 70 days in that same period; and
• Furnished and operated commercially (i.e. with an intention to make profit).

If these thresholds are not met, the property remains liable for Council Tax, and therefore potentially for the Premium.

Reliefs and financial impact

Operators qualifying for business rates may be eligible for Small Business Rate Relief:

• 100% relief for rateable values under £12,000 (if it is the business’s only property);
• Tapered relief for values between £12,001 and £15,000;
• Other schemes (e.g. hospitality and leisure relief) can offer up to 40% reductions for 2025–2026, capped at £110,000 per business.

Given the complexity of VOA assessments and available reliefs, professional ratings advice is strongly recommended before conversion.

Contractual considerations

If operating under a management or a lease, with a property owner, operators must confirm whether switching from Council Tax to business rates requires the owner’s consent. Often such consent can be withheld at the owner’s discretion. Any proposed reclassification should be cleared contractually before proceeding.

The Premium sits within a broader tightening of regulation around short-term and holiday letting. In several ‘second-home hotspots’, local authorities are pursuing complementary planning and registration measures to manage the growth of STRs.

Consequently, operators face increasing scrutiny from both tax and planning authorities. Any change in tax treatment should therefore be aligned with the property’s planning classification and overall compliance strategy.

Implications for professional STR operators

The new regime represents both risk and opportunity, depending on how businesses are structured. Key challenges include:

1. Higher fixed costs: where properties are treated as second homes rather than businesses, doubling Council Tax exposure.
2. Eligibility burden: switching to business rates requires demonstrating genuine commercial activity, with robust records of availability, bookings, and advertising.
3. Regulatory pressure: growing oversight of STR use, particularly in areas where councils seek to protect local housing stock.
4. Market adjustment: possible downward pressure on yields or property values as owners re-evaluate the viability of part-time letting models.

Potential opportunities include:

1. Competitive advantage: established, full-time STR operators meeting business rate criteria may avoid the Premium and gain advantage over casual hosts.
2. Market consolidation: less-active operators may exit the market, easing competition and improving occupancy rates for professional operators.
3. Access to reliefs: qualifying for SBRR or sector-specific rate reliefs can reduce costs and support sustainable operations.
4. Professional credibility: operating transparently within tax and planning frameworks may enhance brand value and lender or investor confidence.

Practical considerations and key questions

The introduction of the Premium marks a significant policy shift in the treatment of properties used for short-term letting. Given this evolving landscape, professional STR operators are advised to take a structured approach to assess exposure and plan accordingly. The following questions may help guide decision making:

1. Classification:
   • Is each property currently treated as a second home or as business premises?
   • Does it meet VOA thresholds for business rates?

2. Local policy:
   • Has your local authority adopted the Premium, and at what rate?
   • What notice, if any, has been given of implementation from 1 April 2025?

3. Cost–benefit analysis:
   • Does projected income justify retention if the Premium applies?
   • Would increased letting activity qualify for business rates?
   • Are owners/landlords contractually obliged to share or bear the Premium cost? If not, is it possible to engage with the owner/landlord so that the burden is shared?

4. Compliance:
   • Maintain accurate records of letting availability, occupancy, and advertising.
   • Monitor planning classification and ensure alignment with C1/C3 use class requirements.

5. Strategic positioning:
   • Market exits by less-active owners may open opportunities for expansion or longer-season operation.
   • Conversely, rising costs may create downward price pressure across some markets, making forecasting for the worst-case scenario, crucial.

Operators must now ensure their properties are either genuinely commercial businesses qualifying for business rates, or be prepared to absorb substantially higher Council Tax liabilities.

If you are a professional short-term rental operator and have questions or concerns about the double Council Tax, please contact Nadia Milligan.