TTR Barnes

While owning a second home can be seen as an attainable aspiration and something to work towards, recent and upcoming changes in law mean that many landlords and multiple homeowners are seeing increased financial challenges, causing them to reassess their approach to home ownership and making the dream of owning additional property harder to reach.

The new rules are aimed at the government tackling the property crisis, bringing empty homes “back into productive use, while raising additional revenue to support local services and keep council tax down for local residents.”

However, with some 2.1m households reported as owning at least one extra property, the changes are already driving shifts in second home property ownership.

Changes to Council Tax

If a property is not a sole or main residence, then it is classed as a second home.

Whether that additional property is used as a holiday home, rented out to others or is lying empty, council tax will still need to be paid, at a rate dictated by the Local Authority.  With long-term rental properties, this could be by the property owner or the tenant, depending on what has been agreed (this may change if the house is used for multiple occupation and tenants rent individual rooms). In the instance of a holiday or second home, it is paid by the property owner, but with the opportunity to apply for a discount in certain circumstances.

Rule changes due to come into force in April 2025 mean that council tax charges for second homes could be significantly higher.  A “second homes premium” has been introduced, which allows councils to charge up to 100% more in additional council tax on furnished homes that are not used as a main residence. Some councils have already voted, and homeowners will see these additional premiums come into force from next April.

Some second homeowners may be eligible for discount on their council tax in the following instances:

• Where the property is for sale or rent and is advertised at a realistic market value through an estate agent
• Where the council taxpayer must live elsewhere in accommodation related to their job, for example an estates manager, vicar or caretaker
• Where the property requires renovation, and evidence can be provided of the work that has been completed/is outstanding
• Where the property is undergoing probate
• Where the owner is unable to sell or let the property due to legal or technical issues
• Where the property has been deliberately kept empty or is waiting to be demolished as part of a renovation
• Where an annexe forms part of the main dwelling (second homes only)
• If the property is an occupied caravan pitch or boat mooring (second homes only)
• With seasonal homes where year-round occupation is prohibited (second homes only)

Empty Home Definition

Previous rules dictated that, if a house were “substantially unfurnished” (where the property would not be habitable) and unoccupied for two years, then it classed as an “empty home” and the council tax premium could be charged. However, under the Levelling Up and Regeneration Act 2023, homeowners in England and Wales can now see this premium applied after just one year of a property lying empty, and even with properties that are “substantially furnished”. The premium charged could be anything between 100-300%, depending on how long the property has been empty. Your second property will no longer be classed as empty when it has been furnished and occupied for more than six consecutive weeks.

Holiday Homes

If you own a holiday home that isn’t let, isn’t empty and you use as a second home, then you will need to pay council tax on it. The rate will be dependent on the valuation band and local council charges. Council tax on second properties is more expensive – anything up to a premium of 300%.

Holiday Lets

When a second home is registered as a holiday let, it means that business rates can be paid rather than council tax. Furthermore, small business rates relief of up to 100% is available for properties with a rateable value of less than £15,000.

Letting additional properties out as a business, such as holiday accommodation, was once a viable way to avoid paying second home council tax, but the rules around this are now stricter.  Second homeowners were previously eligible for business rates relief simply by declaring an intention to let the property for a total of 140 days per year, without any proof required.

As of April 2023, homeowners now need to prove that the property was rented out for a minimum of 70 days’ worth of short-term lets in a period of one year, and that it was available and advertised for a minimum of 140 days within the same period. This must be proved through evidence such as the website/brochure advertising the property, receipts or letting details.

A mandatory national register is also being introduced.  Known as the “holiday let registration scheme; it will allow Local Authorities to access data to show them the number of short-term lets within their area.

Changes to the Furnished Holiday Let Scheme

In the 2024 Spring budget the government announced that they would be ending the Furnished Holiday Let (FHL) scheme, as of April 2025.

Under the FHL scheme a property owner can currently claim Business Asset Rollover relief to defer the payment of Capital Gains Tax. Unlike landlords of other residential property and long-term lets, landlords of FHLs can claim capital allowances for items such as furniture, equipment and fixtures used in the property. Additionally, any profits can count as earnings for pension purposes.

Under the changes as of April 2025, an FHL landlord will no longer be eligible for the following:

• Capital Gains Tax relief
• Claiming of capital allowances for items such as furniture or white goods
• Tax relief on any rental income being paid into a pension scheme

Changes to Multiple Dwellings Relief (MDR)

Buying a second home usually incurs a 3% surcharge over and above the standard Stamp Duty Land Tax.  Previously second homeowners could benefit from the Multiple Dwelling Relief (MDR) for Stamp Duty Land Tax (SDLT).  Introduced in 2011, the scheme aimed to stimulate investment in residential properties and worked by applying SDLT rates to the average price of each dwelling rather than the total chargeable consideration.

As of 1^st June 2024, this relief was abolished, meaning the potential for SDLT savings is no longer available.

What further changes can landlords expect?

With the upcoming Autumn statement from a new Labour government, further changes could be expected to impact second homeowners.  Property experts are predicting an increase in CGT rates. CGT for residential property currently lies between 18% to 24%, but this could rise to as much as 45% to be fall line with Income Tax rates.  IHT is another area of tax where rates could see an increase.

Next Steps

Options are limited for second homeowners to reduce these changing liabilities but, at a minimum, an understanding of the rules is key to ensure compliance and avoid any financial penalties.  If you own multiple properties and want to understand how these changes may impact you, please do contact our TTRB or Key Wealth Management team for expert advice.

All information correct at time of going to print/live and on the best knowledge and understanding of the author at the time. This article is for general information only and does not constitute financial advice or recommendations for individual circumstances. No responsibility is taken for any actions taken on the base of the information within this article. 

Please note: information is based on rules in England. Scotland, Wales and Ireland will differ.