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Business rates or council tax on a holiday let, and which is cheaper

A holiday let that meets the letting test pays business rates, and one that misses it pays council tax. England changed its test on 24 July 2026 and GOV.UK has not caught up. Here are the thresholds, the multipliers and the point where business rates stops being the cheaper bill.

Published 2026-08-12 · updated 2026-08-12 · 10 min read · all figures sourced below

A self-contained holiday let pays business rates if it meets the letting test in section 66 of the Local Government Finance Act 1988, and council tax if it does not. You do not choose, and the two bills are far apart: a small English holiday let usually pays nothing at all in business rates, while the same property in council tax costs about £2,392 a year at band D and up to double that if the council charges a second homes premium.

A caravan or lodge on a holiday park sits outside both. That case is dealt with separately below, and in more detail in do you pay council tax on a static caravan.

Which bill does a holiday lodge on a park get?

Neither, in your name. Regulation 3 of the Non-Domestic Rating (Caravan Sites) Regulations 1990 says that where pitches for leisure caravans on a relevant site are separate hereditaments because they are occupied by people other than the site operator, those pitches and the operator's own part of the site "be treated as one hereditament and as occupied by that site operator". Pitches occupied by a charity for charitable purposes are excluded.

So the park gets one business rates bill and recovers a share from you as an annual charge. Council tax does not arise, because section 66(3) of the 1988 Act takes a pitch occupied by a caravan out of the domestic property definition unless the caravan is somebody's sole or main residence.

The rest of this article is about the other case: a holiday cottage, chalet, apartment or any other self-contained building you let out. That is where the letting test bites.

What decides whether a holiday let pays business rates or council tax?

Days. England and Wales both use a two-part test built on how many days the property was available for commercial letting and how many days it was actually let, and the two countries set the bar in different places.

In England, section 66(2B) makes a building or self-contained part non-domestic where the owner intends it to be available for commercial letting as self-catering accommodation for short periods totalling 140 days or more in the coming year, their interest in the property lets them do that, and one of three further conditions applies. The 140 day figure has been in the section since 1 April 2023, substituted by the Non-Domestic Rating (Definition of Domestic Property) (England) Order 2022.

In Wales, section 66(2BB) requires 252 days of intended availability, 252 days of actual availability in the preceding year, and at least 182 days of actual letting. Those figures were substituted on 14 June 2022 by the Non-Domestic Rating (Amendment of Definition of Domestic Property) (Wales) Order 2022. Two Welsh softenings took effect on 1 April 2026 under the equivalent 2026 Order. The 182 day letting test can now be met as an average over the last two or three years, and up to 14 days let free of charge through a registered charity count towards the thresholds.

Section 66(8A) defines "commercially" as on a commercial basis and with a view to the realisation of profits. Section 66(2D) disapplies the whole thing where the building is anyone's sole or main residence.

The numbers are easy to mix up. 140 and 70 are English, 252 and 182 are Welsh. The Welsh rules diverge elsewhere too, covered in buying a holiday lodge in Wales.

What changed in England on 24 July 2026?

The 70 day actual letting test stopped being the only route. The Non-Domestic Rating (Definition of Domestic Property) (England) Order 2026, SI 2026/692, made on 25 June 2026 and in force from 24 July 2026, removed the old paragraphs 66(2B)(c) and (d) and inserted subsections 66(2BZA) to (2BZD). There are now three alternative ways to satisfy the same requirement.

The first is the familiar one. Subsection (2BZA) requires 140 days or more of availability in the previous year and at least 70 days of actual letting in that year.

The second, subsection (2BZB), applies where the holiday let is occupied together with land used for a purpose other than commercial self-catering letting, that land is not domestic property, and both form part of the same relevant hereditament. A holiday cottage sitting within a working farm or an activity business is the obvious case.

The third, subsection (2BZC), applies where the property is part of a relevant hereditament comprising five or more buildings or self-contained parts that meet the availability and interest tests and are not used as anyone's sole or main residence. Subsection (2BZD) says a relevant hereditament here means a single hereditament, or hereditaments separated by a highway that would be one hereditament but for the road.

Under either of the new routes, the 140 day availability intention still applies. The 70 day actual letting requirement does not. For a site with five or more units, that removes the annual risk of one poor season pushing individual units into council tax.

GOV.UK has not been updated. Its self-catering and holiday let accommodation page still gives the England test as 140 nights available and 70 nights actually let, with no mention of the alternatives added three weeks ago. Where guidance and statute disagree, the statute is the law. Anyone relying on the GOV.UK page alone will assume they fail a test they may now pass.

Which bill is actually cheaper?

For a single small holiday let in England, business rates, by a wide margin, and the reason is relief rather than the tax rate. GOV.UK states that you will not pay business rates on a property with a rateable value of £12,000 or less if it is the only property your business uses. Between £12,001 and £15,000 the relief tapers from 100 per cent to zero, and GOV.UK gives £13,500 as attracting 50 per cent relief and £14,000 as attracting 33 per cent.

Set that against council tax. The Ministry of Housing, Communities and Local Government reported on 25 March 2026 that the average band D council tax set by local authorities in England for 2026-27 is £2,392, an increase of £111 or 4.9 per cent, with the average per dwelling at £1,868. GOV.UK says a council can charge up to two times the normal council tax on a second home. A holiday let that fails the letting test can therefore face roughly £4,784 at average band D, against nil in business rates if it had passed.

Above the relief ceiling the arithmetic reverses. England's 2026-27 multipliers are 48p standard and 43.2p for small businesses below £51,000 rateable value, with lower rates of 43p and 38.2p for qualifying retail, hospitality and leisure property, and 50.8p for anything at £500,000 or above. Self-catering qualifies for the lower rate: the GOV.UK guidance on the Non-Domestic Rating (Definition of Qualifying Retail, Hospitality or Leisure Hereditament) Regulations 2025 lists "use as a caravan park, campsite, self-catering accommodation or holiday home by members of the public". The RHL multipliers sit 5p below their national equivalents and apply only to occupied property below £500,000 rateable value.

So an English holiday let with a rateable value of £20,000 pays 20,000 multiplied by 0.382, which is £7,640 a year with no small business relief available. That is more than three times the average band D bill, and more than the premium-inflated one. The crossover falls somewhere in the £12,000 to £15,000 taper.

Wales is worse on both counts. Welsh small business rates relief gives 100 per cent up to £6,000 rateable value and tapers to zero at £12,000, so the free ride ends at half the English point. Wales also declined to give self-catering a discounted multiplier. Its 2026-27 multipliers are a retail multiplier of 0.350, a standard multiplier of 0.502 and a higher multiplier of 0.515 above £100,000 rateable value. The retail multiplier is restricted to specific rating list descriptions, kiosks, pharmacies, post offices and shops, so a self-catering unit pays the standard 0.502. The same £20,000 rateable value costs £10,040 in Wales against £7,640 in England, a gap of £2,400 on identical property.

Welsh council tax is no refuge either. Section 12B(1) of the Local Government Finance Act 1992, as substituted on 1 April 2026 by the Local Government Finance (Wales) Act 2024, lets a billing authority increase council tax on a second home by a percentage "of not more than 300".

How is the rateable value worked out?

By trade, not by bricks. The Valuation Office values self-catering accommodation on fair maintainable trade, which its guidance published on 26 November 2025 describes as the annual level of trade the property would achieve if operated in a reasonably efficient way. Rental comparisons are used where they exist, and for holiday cottages they usually do not.

Single units and complexes of up to four properties are valued by bed space. The Valuation Office analyses trade data to reach an annual net profit, allocates a share to the operator, and divides the remainder by the number of bed spaces. Business Wales describes the same exercise as the receipts and expenditure method, and lists what comes out of gross income: maintenance for the property and garden, water rates, TV licences and depreciation of fixtures. Loan and mortgage costs are not deducted, so gearing does not reduce your rateable value.

Complexes of five or more units are valued as a percentage of fair maintainable trade, banded by facilities: 11 per cent for category A with excellent facilities, 13.5 per cent for category B, and 16 per cent for category C with basic or no facilities. The better the facilities, the lower the percentage, because the operator carries more cost to run them.

Current rateable values took effect on 1 April 2026 and are assessed as at 1 April 2024. The Valuation Office revalues every three years. A hot tub is listed in the guidance as a factor that raises the assessment, which is worth knowing before you add one. Run your own income assumptions through the ownership cost calculator, and see what you really earn from letting.

What happens if you miss the letting threshold?

The property becomes domestic and gets a council tax band. There is no partial outcome and no discretion: the section 66 tests either apply or they do not, and if they do not, section 66(1) makes property used wholly for living accommodation domestic.

That is the expensive direction of travel. A property paying nothing under small business rates relief moves to an average band D bill of £2,392 in England, with a second homes premium of up to 100 per cent on top where the council has determined one. In Wales the premium ceiling is 300 per cent.

The trap is that the test looks backwards. In England the (2BZA) route asks what happened in the previous year, so a weak season shows up in the following year's liability. Wales now allows two or three year averaging, which England does not. England's answer instead is the two new routes from 24 July 2026, which help multi-unit sites and mixed-use holdings and do nothing for a single cottage letting on its own.

What to check

Count your let nights against the right country's threshold, and count availability separately from actual lettings. They are different tests.

If you have five or more units, or a cottage sitting alongside non-domestic land in the same hereditament, check whether subsection (2BZC) or (2BZB) applies before you accept a council tax band. GOV.UK guidance will not tell you these exist.

Look up your rateable value and work out the bill yourself: rateable value multiplied by the correct multiplier, then relief. If it lands above £15,000 in England or £12,000 in Wales, business rates is likely the more expensive of the two, and the tax treatment of your letting income is a separate question again, covered in furnished holiday lettings abolished.

Sources