How to Convert Your Second Home into a Holiday Let

In 2024 we saw the government introduce new regulations related to second home ownership, which in turn impacted the holiday letting industry. One change involved council tax and gave local councils the authority to increase council tax bills for people who own a second residential property.

One way for owners to avoid receiving such a hefty bill is to turn their property into a holiday let; the government will then regard it as a business and the owner can pay business rates, which can be substantially lower than council tax. The question is, how do owners turn their second home into a holiday let? Plus, are they fully prepared not only to convert their home but to undertake the task of running a holiday let?

What constitutes a holiday let?

It’s important to understand that to be exempt from council tax, owners must treat their holiday let as a legitimate business; it’s not enough to rent it out for a few days here and there. Details can be found on the government’s website (NB: England, Wales and Scotland all have their own thresholds), which stipulates that the property must be both available for letting and actually rented out commercially for a minimum number of days per year.

Essentially, owners who own a second residential home can’t treat it as a commercial holiday let if they only periodically rent it out or invite friends to stay every so often. To be exempt from council tax and qualify for business rates, operations must be run as a genuine business, and the property must be available to members of the public.

Converting your home: key questions to ask

The first decision that second home owners should make is whether they’re willing to commit to running a holiday let. Success requires the owner to prepare a solid business plan before getting their mortgage (a residential mortgage isn’t suitable, so the owner needs to apply for a holiday let mortgage) and putting in the hard work required once the holiday let is up and running. This encompasses everything from professional marketing and financial planning to the general upkeep of the property.

Once the initial decision to convert the property has been made, it’s time for the practical questions, such as:

• Do you want to open your second home fully to guests, or keep a part of it private? For example, there’s the option to keep one room locked with your personal possessions inside. This is a convenience tactic and can avoid the hassle of moving everything out of the second property. However, it can impact the holiday let’s revenue as there’s an entire room which has been made redundant. This room, if utilised, could allow you to cater for a higher number of guests and therefore allow you to charge a higher rental fee.

• What impact does your decision to rent out your property have on the neighbours? It’s important to factor them into your letting plans and to speak to them as a courtesy. Not only can this help to placate them if they’re wary of the situation, but it can help to avoid future misunderstandings when they see strangers coming in and out of your house! Where necessary, it’s a good idea to reassure them that they won’t be negatively impacted and provide contact details that they can use if there are any problems during a guest’s stay.

• Can you shift your mindset and stop treating the property as your personal home, and will you feel comfortable renting it out to the public? While you can stipulate rules in the booking terms and conditions (such as ‘no dogs’ or ‘no stag/hen parties’) and remove items which you don’t want people to use, guests will want to treat your property as their home during their holiday. This could mean anything from changing the settings on the TV and thermostat to moving furniture around. If you aren’t happy with the idea of others living in ‘your’ home, then perhaps holiday letting isn’t a wise choice.

• Does your property work as a holiday let? You might be comfortable living in your home and think it fit for purpose, but you have to be much more careful when it comes to welcoming guests. You’ll need to ensure that the property meets current health and safety regulations, and that there aren’t potential hazards such as uneven pathways and wobbly banisters. Plus, you’ll need to get gas appliances and the boiler checked, get a fire assessment, and take out public liability insurance.

The legalities: informing the council

To stop paying council tax and switch to business rates, owners must inform the council about their letting activity. As explained on the HMRC website, “Your local council will decide whether the property is a second home and how much council tax to charge you.” Once the council has been notified about the change in usage, the owner can switch from paying council tax to business rates.

What about my mortgage?

As mentioned, a regular residential mortgage doesn’t allow owners to rent their property to guests; to do so would breach their mortgage contract. It’s essential to get a holiday let mortgage and as there are far fewer lenders operating in the market, owners might have to switch their mortgage provider.

Due to the specialist nature of holiday let mortgages, we’d advise owners to work with a broker such as Holiday Cottage Mortgages, who has an expert understanding of the market and knows those lenders who will work with holiday let properties. If you want to turn your second home into a holiday let and require more information about getting a holiday let mortgage, contact us here.