Holiday lets tax penalties fail to boost mainstream rental markets

Holiday lets tax penalties fail to boost mainstream rental markets

New council tax premiums on second homes and holiday lets have not significantly improved housing availability or sales activity in key areas like Devon and Cornwall, despite encouraging some owners to sell.

From April 2025, local authorities in England gained powers to charge up to a 100% council tax premium on second homes, aiming to reduce the appeal of holiday lets and increase residential housing supply. However, recent analysis indicates these measures have not yet translated into stronger mainstream rental markets in popular tourist regions.

Research by LandSale examined residential transaction volumes across England, with a focus on the South West, Devon, and Cornwall, alongside data on holiday let property listings. The findings reveal that while more holiday let owners are bringing properties to market, the overall housing market remains subdued in these areas compared to the national average.

Analysis of holiday let market and transaction trends

LandSale’s data shows there are approximately 10,334 properties currently listed for sale across England suitable for use as holiday lets. Over half (51.2%) of these are located in the South West, underscoring the region’s dominance in the holiday let market. Cornwall and Devon, as major tourist destinations, contribute significantly to this concentration.

Within LandSale’s platform listings, 30.2% of holiday let properties are in the South West, with the East of England and Yorkshire & the Humber tied for second place at 14.3% each. This distribution highlights the regional disparities in holiday let prevalence.

Despite the concentration of holiday lets, the rapid growth of such properties has been controversial. Local communities have raised concerns about reduced housing availability for residents, inflated property prices, and a proliferation of empty homes for much of the year.

To address these issues, the government empowered local councils to impose higher council tax premiums on second homes, intending to discourage ownership for holiday letting and encourage properties to return to the residential market.

Limited impact on housing market activity in Devon and Cornwall

Between 2024 and 2025, residential transaction volumes in England increased by 4.4%. However, Cornwall and Devon experienced more modest growth of 3.7% and 1.5% respectively. This suggests that despite an increase in supply due to higher council tax charges, buyer demand and transaction levels in these key areas remain relatively weak.

A LandSale spokesperson commented that while the policy has prompted more holiday let owners to list their properties, increasing supply alone does not guarantee a healthier housing market. Strong buyer demand and consistent sales activity are also necessary components.

More than a year after the introduction of these council tax changes, the data indicates that the policy has yet to deliver a noticeable improvement in market performance for Devon and Cornwall. Both regions continue to lag behind the wider English housing market in terms of transaction growth.

Context of holiday lets and second homes in the rental sector

The growth of holiday lets and second homes has been a contentious issue for several years, particularly in popular coastal and rural areas. These properties often remain unoccupied outside peak seasons, reducing the availability of homes for local residents and contributing to affordability challenges.

Government interventions like the council tax premium aim to balance the interests of local communities with those of property owners and the tourism sector. However, the effectiveness of such measures depends on a complex interplay of factors including local demand, economic conditions, and broader housing policies.

For landlords and letting agents, the distinction between holiday lets and mainstream residential rentals is significant. Holiday lets often operate under different regulatory and tax frameworks, and changes affecting one segment may not directly translate into benefits for the other.

Practical implications for landlords and letting agents

Landlords with properties in areas affected by council tax premiums should review their portfolios carefully. Those operating holiday lets may face increased running costs, which could influence decisions on whether to continue in this market or switch to longer-term residential lettings.

Letting agents should be aware that while more properties may come onto the market due to these tax changes, demand from buyers and tenants may not increase proportionally. This could affect pricing strategies, marketing approaches, and client advice.

Furthermore, landlords considering converting holiday lets to mainstream residential rentals must ensure compliance with relevant tenancy laws and safety regulations, which differ from those governing short-term holiday accommodation.

Ongoing uncertainties and what to monitor

It remains unclear how long it will take for the council tax premium policy to have a more pronounced effect on housing availability and market activity. Economic factors such as interest rates, wage growth, and broader housing supply constraints will also influence outcomes.

Local authorities may adjust premium rates or introduce additional measures if current policies fail to meet objectives. Landlords and agents should stay informed about regional developments and government consultations that could impact property taxation and rental market dynamics.

Additionally, the balance between supporting tourism economies and addressing housing shortages will continue to challenge policymakers, with potential implications for future regulation of holiday lets and second homes.

What landlords should consider now

• Review the impact of council tax premiums on your holiday let properties, including running costs and profitability.
• Assess whether switching properties from holiday lets to mainstream residential lettings aligns with your investment strategy and regulatory obligations.
• Stay updated on local authority policies regarding second home taxation and any forthcoming changes.
• Ensure all properties comply with relevant safety and tenancy regulations, especially if changing use from holiday let to residential tenancy.
• Engage with letting agents to understand market demand and pricing trends in affected areas.

Supporting landlords through changing tax and rental environments

The Landlord Association (TLA) membership offers access to practical compliance resources and guidance to help landlords manage the complexities of property taxation and rental market shifts. Through TLA’s BETA testing platform, ORBIT, members can organise property records, monitor regulatory developments, and maintain documentation related to tenancy management and tax obligations.

ORBIT’s developing features include tools to record key property actions and communications, supporting landlords in demonstrating compliance with evolving requirements. TLA membership also provides updates on local licensing and tax policy changes, helping landlords prepare for and respond to new challenges in the rental sector.

Explore TLA membership and learn more about ORBIT BETA access to benefit from tailored support in managing portfolios amid regulatory and market changes.

Looking ahead, landlords and agents should continue to monitor the effects of council tax premiums on supply and demand, while preparing for possible further policy adjustments aimed at balancing housing availability with the needs of local communities and the tourism sector.

Sources: Letting Agent Today