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Mansion Tax Loophole? Could £2m+ Holiday Lets Escape the New Surcharge?

ended 27. August 2026

The Government’s proposed High Value Council Tax Surcharge (dubbed the Mansion Tax) will apply from April 2028 to owners of residential properties in England valued at £2 million or more.

However, the current consultation defines properties in scope using the existing Council Tax definition of a dwelling. Holiday lets that meet the required commercial letting thresholds can instead be placed on the non-domestic rating list and become liable for business rates.

In England, a holiday let must have been commercially available for at least 140 nights and actually let for at least 70 nights during the relevant 12-month period to qualify for business rates. The owner must also intend to make it commercially available for at least 140 nights during the following 12 months. 

Could this mean high-value holiday lets escape the surcharge? Might it encourage owners of expensive second homes to increase lettings or switch to commercial holiday-let status? The final legislation has yet to be published, and holiday lets are not expressly addressed in the consultation.

Questions

  1. Based on the current proposals, do you believe a holiday let registered for business rates would fall outside the High Value Council Tax Surcharge—or is further clarification or anti-avoidance legislation likely?
  2. Could the surcharge encourage owners of properties worth £2 million or more to convert second homes into commercial holiday lets to qualify for business rates? Would this be legitimate tax planning or a loophole?
  3. What mortgage, lending or insurance implications could arise if an owner changes a high-value property from private or second-home use to commercial holiday letting?
  4. What effect could this have on the high-end holiday-let market, local housing supply and demand for suitable holiday-let finance?

5 responses from the Newspage community

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Editor
Kate Allen
Owner at Finest Stays
This could be the rare tax loophole that delivers a genuine dividend for coastal communities.

We operate across some of the South West’s most exclusive holiday hotspots, including Salcombe, Thurlestone, Hope Cove and Dartmouth, and more than half of the properties in our portfolio are worth £2 million or more. We’re already seeing savvy second-home owners turn underused properties into genuine holiday lets and, once they meet the required letting thresholds, apply for business rates. If the mansion tax encourages more owners to do that, it could be extremely positive.

A high-value property sitting dark for much of the year contributes very little to its local community. Put guests inside it and the lights come on; not only in the house, but in local pubs, restaurants, shops and attractions. Guests staying in luxury holiday homes spend significantly in the area, supporting jobs, local suppliers and continued investment in the visitor economy.
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Nouran Moustafa
Practice Principal & IFA at Roxton Wealth
On the current wording, there is a very obvious question: if the surcharge follows the Council Tax definition of a dwelling, what happens when a £2 million property is legitimately on the business-rates list instead?

I would not call it a loophole yet, because the legislation is not final and I would be amazed if the Government ignored this once people start restructuring around it. But yes, it could absolutely influence behaviour. A wealthy second-home owner may suddenly have a very strong reason to make the property commercially available and meet the holiday-let tests.

That is where the unintended consequences start. You could distort the high-end holiday-let market, push more properties towards commercial use and create mortgage and insurance complications because the property is no longer being used in the way the original lending was arranged.

Tax policy changes behaviour. If ministers leave a £2 million doorway open, people will walk through it.
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Editor
Tony Sanchez
Founder at Bridging Loan Directory
The present wording creates a question, but it is too early to call it a loophole. The surcharge is proposed for “dwellings” using the Council Tax definition, while a commercial holiday let meeting the required letting tests can sit on the non-domestic rating list. The final legislation needs to state explicitly how those properties will be treated.

Changing status would not be a paper exercise. An owner must achieve at least 70 commercial letting nights, operate with a view to profit and maintain the required availability. They must also check that their mortgage permits holiday letting and notify their insurer; the appropriate valuation, affordability assessment and finance product may differ from those for a private second home.

Some owners may investigate the option, but tax alone will not turn every £2m property into a viable holiday-let business. Demand, planning restrictions, management costs and lender appetite will still determine whether conversion is practical.
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Editor
Evren Ergin
Founder And Developer at ValuQ
Yes, and it exposes the real flaw. The surcharge is bolted onto the council tax definition of a dwelling, so the moment a £2m home moves onto the business-rates list as a holiday let, it stops being a dwelling and the surcharge cannot reach it. The threshold is already public: available 140 nights, let for 70, and you are out.

This is not hypothetical: the same flip already costs councils around £330m a year in lost council tax. The surcharge only sharpens it, pushing some £2m second homes toward exactly the conversion it should discourage. Every one that flips is a large home taken out of the residential market to avoid a tax, which is the opposite of what housing policy should reward.

The lesson is the one the whole system keeps teaching. Tax the label rather than the value, and owners simply change the label. A £2m house is a £2m house whether a family lives in it or it is let 70 nights a year. Tax the value, not the classification, and the loophole closes on its own.
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Editor
Harvey Dhillon
Founder & CEO at Zmartly
As the proposal is worded, a holiday let wholly on the business rates list would fall outside the surcharge. The Local Government Finance Act 1992 says a property wholly on the business rates list is not a dwelling for council tax, and the consultation adopts that definition. Clarification is likely: the consultation never mentions holiday lets. Owners are likely to do the sums, but converting is not a form you fill in. A house on its own must already have been available to let for 140 nights and actually let for 70. Do all that for a year and it's legitimate planning, not a loophole. An individual gets no relief for interest on a privately used second home, and letting it commercially moves the interest from the letting profit into a cut in the tax bill. Lending and insurance are for brokers and insurers, and I won't forecast the market or finance demand. On housing supply, the rates route is closed to anyone's sole or main home, but only while it is in use as one.