Holiday let small business rate relief

by Lance Middleton

The letting of holiday accommodation in the UK continues to be a buoyant sector. Arguably it has been bolstered in the last few years by the pandemic, resulting in many people choosing to holiday in the UK rather than travelling abroad.

Providers of holiday accommodation can range from formal letting businesses owning multiple properties, to individuals or couples owning a second home which they choose to let out as self-catering accommodation. In the latter case the letting could be very occasional, for example allowing friends to rent the property for occasional weeks here and there, or it could be that the owners are trying to maximise rental income throughout the year.

Either way, such owners of holiday lets need to consider whether council tax or business rates apply for their property. This is increasingly important as costs and inflation continue to rise generally. Furthermore, the Welsh Government has recently announced plans to increase council tax on second homes, and pressure is being put on councils in England to follow suit.

Owners of second homes are usually liable for council tax, however under current rules, if they declare that there is an intention to let the property commercially as holiday accommodation, for short periods at a time totalling at least 140 days in the upcoming year, then business rates apply instead.  The potential advantage of business rates over council tax is that if the accommodation is eligible for small business rate relief, a significant reduction of the liability can be achieved.

The Government has expressed concerns that some individuals are not paying their fair share of council tax, with owners declaring their intention to let their property out to holidaymakers, but in practice making little or no effort to do so, while accessing small business rates relief. New legislation is therefore being brought in from April 2023 to prevent people abusing this loophole.

From April 2023, business rates will only apply (and it follows that rates relief can potentially then be claimed) if owners can prove that their property was let out as holiday accommodation for at least 70 days in the previous year. Furthermore, their properties will have to be available to be rented out for at least 140 days in the year, and that will continue to be the case in the following year.

Just to reiterate, the criteria for achieving business rates apply to individuals owning second homes just as much as they do to more formal business structures – the key issue being that there is commercial holiday letting being carried out, as outlined by the minimum requirements outlined above.

In the event business rates apply, how is small business rates relief calculated?

Firstly, the level of business rates is calculated based on the “rateable value”, currently open market rental value on 1 April 2015 (as estimated by the Valuation Office). From April 2023 the rateable value will be based on the rental value as at 1 April 2021.

If the rateable value is:

  • £12,000 or less, 100% full relief applies, and in this case no business rates at all are payable.
  • between £12,000 and £15,000, the relief is tapered (for example rateable value of £13,500 gives a 50% reduction).
  • greater than £15,000, there is no rates relief, with the full level of business rates being payable.

In summary, anyone letting holiday accommodation out should consider whether they meet the criteria for “commercial” letting, either under current rules by having the intention to let their property for at least 140 days per year, or from April 2023 by being able to prove minimum letting of 70 days and availability to let of at least 140 days per year.

If the criteria are met, business rates can be paid instead of council tax bills, which can be fully or partly relieved by small business rates relief if annual open market rental value is less than £15,000.

We have only considered local property taxes in this article and anyone letting property out should also seek tax advice regarding their Self-Assessment tax obligations.

Author

Lance Middleton

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