From April 2023, second homeowners will have to prove holiday lets are being rented out for a minimum of 70 days a year to access small business rates relief, where they meet the criteria.
Holiday let owners will have to provide evidence such as the website or brochure used to advertise the property, letting details and receipts.
Properties will also have to be available to be rented out for 140 days a year to qualify for this relief.
Previously, some owners of second homes in England could avoid paying council tax and access small business rates relief instead by declaring an intention to let the property out to holidaymakers.
Around 65,000 holiday lets in England are liable for business rates and 97 per cent have rateable values of up to £12,000, meaning they are eligible to pay no business rates at all.
A report from Colliers last year revealed local councils in England and Wales were losing out on £110m due to this loophole.
Currently there is no requirement for owners to provide evidence stating a property has been commercially let out.
Secretary of state for levelling up, Michael Gove, said: “The government backs small businesses, including responsible short-term letting, which attracts tourists and brings significant investment to local communities.
“However, we will not stand by and allow people in privileged positions to abuse the system by unfairly claiming tax relief and leaving local people counting the cost. The action we are taking will create a fairer system, ensuring that second homeowners are contributing their share to the local services they benefit from.”
Kurt Jansen, director of the Tourism Alliance, added: “Establishing these new operational thresholds for self-catering businesses is welcomed by the tourism industry as it makes a very important distinction between commercial self-catering businesses that provide revenue and employment for local communities, and holiday homes which lie vacant for most of the year.
“It is recognition that tourism is the lifeblood of many small towns and villages, maintaining the viability of local shops, pubs and attractions.”