Business Rates vs Council Tax for Short-Term Lets (UK 2025): The Complete Investor Guide
Short-term lets continue to grow in the UK, but one area most investors misunderstand is how their property is taxed — specifically whether they should be paying council tax or business rates.
The truth is:
Most short-term let owners assume that guests pay their own council tax (as with long-term tenants).
But for Short Term Rental (STR)/holiday-let use, the owner is usually liable — often for several months — until the property officially qualifies as a business.
Because information online is scattered and outdated, this guide breaks down everything investors need to know to protect their profits and stay compliant in 2025.
1. Why Short-Term Lets Are Taxed Differently
Short-term lets (Airbnb, serviced accommodation, holiday lets, STRs) are treated differently to standard long-term rentals because:
Guests do not establish residency
The property functions more like a business
Councils are under pressure to ensure correct taxation
This matters because council tax and business rates operate under completely different systems, with different tax reliefs and profit implications.
2. When a Short-Term Let Pays Council Tax
A property must pay council tax if it does not meet the criteria to be listed as a business property.
A short-term let will be charged council tax if:
It is not available to let for at least 140 days per year, OR
It is not actually let for at least 70 days per year, OR
The owner cannot provide evidence that it is genuinely operated as a commercial short-let business.
Key point:
Council tax applies even if you intend to use the property as an STR. Until the council is satisfied, council tax is charged by default.
3. When a Short-Term Let Can Switch to Business Rates
Under UK valuation rules, a property can move onto business rates if it meets:
The 140-Day Rule (Availability)
The property must be available to let to the public for 140+ days per year.
The 70-Day Rule (Actual Letting)
The property must be actually let for 70+ days per year.
These rules were introduced to prevent casual Airbnb use from accessing tax reliefs.
Once these rules are met and evidenced, the Valuation Office Agency (VOA) can list the property for non-domestic (business) rates.
Many councils do not automatically accept short-term let (STR) business status. Here’s how the process typically unfolds:
• Booking calendars
• Guest invoices
• Proof of marketing
• STR insurance
• Bank statements showing STR income
• Maintenance invoices
This is why many owners end up paying 6–8 months of council tax, even if they operate the property as a short-term let from day one. Some councils — especially in tourism-heavy areas — may assess faster, while others take much longer.
Talk Through Your Short-Term Let Property Position & Next Investment
If you’re unsure whether your short-term let should be on council tax or business rates – or you’re planning your next STR purchase – a short call can save you from costly mistakes and missed returns.
On our call we can cover:
- Whether your existing or planned STR can realistically qualify for business rates.
- What your council will want to see in terms of evidence and occupancy.
- How business rates relief could affect your annual net cashflow.
- Current short-let opportunities I’m sourcing across the UK.
- What you could buy today with around £30,000–£35,000 invested (with the balance on a mortgage), subject to available stock and pricing.
I speak to hundreds of landlords every year about short-term lets – this call is about clarity, numbers and realistic options, not a hard sell.
Trusted by Active Landlords & Investors
My focus is sourcing fully managed, hands-off short-let properties that target net yields in excess of 10%, in locations where the numbers stack up.
We’ll look at your goals, budget and timeframe, then discuss whether the current deals I’m working on are a fit for you.
No obligation, and no pressure – just a structured conversation about how to make short-term lets work for you.
Business rates relief (below) applies regardless of ownership structure.
However, some investors choose Ltd companies for:
Corporation tax advantages
Mortgage structure
Liability separation
But company status does not affect whether a property qualifies for business rates.
No — you do NOT need a limited company.
Eligibility is based on:
The use of the property
Letting activity
Documentation
Meeting the 140/70-day rules
5. Do You Need a LTD Company to Qualify for Business Rates?
Once on business rates, a property receives a Rateable Value (RV) based on projected annual rental income.
Most single short-lets in the UK fall into:
£0–£12,000 RV
➡️ 100% small business rates relief (SBRR)
➡️ Pay £0 per year
£12,001–£15,000 RV
➡️ Tapered relief (0–100%)
£15,000+ RV
➡️ Full business rates payable
(Still often cheaper than council tax)
This is the key benefit many landlords miss.
6. Rateable Value (RV) & Small Business Rates Relief Explained (SBRR)
Enter your estimated annual gross rental income (before costs) from your short-term let. This tool uses that figure as a rough proxy for your Rateable Value (RV) for a typical 1–2 bedroom short-term let / holiday let. The actual RV will be set by the Valuation Office Agency (VOA) and may differ.
Important: This is a simplified guide only. The VOA will set the official Rateable Value (RV) using their own valuation rules and local market evidence. Your local council will confirm any Small Business Rates Relief applied.
7. 2025 Council Tax Increases (and Investor Impact)
Under the 2025 Labour government, many councils have increased rates:
Band D rises of 4–7% in many regions
Additional STR levies being discussed
Some councils exploring double council tax on second homes
Result:
👉 Your STR profit can fall by 15–20% if you remain on council tax instead of business rates.
This is driving more investors to switch — but the rules are stricter now.
8. Worked Examples
Scenario 1: 1-Bedroom STR Paying Council Tax
Band C: £1,900/year
No relief
Profit reduction: £158/month
Scenario 2: Same Property Qualifies for Business Rates
RV: £9,500
100% SBRR
£0 payable
💡 Savings: £1,900/year
| Scenario | Tax Type | Annual Cost |
|---|---|---|
| Standard Council Tax | Council Tax (Band C) | £1,900 |
| Short-Term Let | Business Rates (with SBRR) | £0 |
9. FAQ
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Do short-term lets pay council tax or business rates?
Depends on whether the property meets the 140/70-day rules.
Can I switch immediately to business rates?
No — councils require proof of activity first.
How long does it take to switch?
Typically 6–8 months.
|
Do I need a Ltd company?
No.
Do I get business rates relief?
Most STR properties receive 100% relief due to low Rateable Value.
Is business rates cheaper than council tax?
Almost always — often £1,500–£2,500 cheaper per year.
Do all councils follow the same rules?
Yes for VOA criteria — but processing times vary massively.
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