Business rate rules for holiday lets

The government has announced they will be making changes to the business rates rules for holiday lets. The rules will continue to apply only to property that would otherwise be assessed for council tax but in a change to regulations, the criteria that a property owner must meet is changing.

In line with rules already introduced in Wales in 2010, the government has decided to introduce a 140 day availability condition and 70 day letting condition in the year preceding the day of assessment for holiday lets in England. The Scottish government is also expected to introduce similar rules from 1 April 2022.

Being assessed for business rates rather than council tax can represent a significant saving for holiday let owners as many let properties have a rateable value below the threshold for small business rate relief. This means that properties with a rateable value below £12,000 could be subject to zero business rates (as they are eligible for 100% relief of business rates) and those with a rateable value between £12,000 and £15,000 should be eligible for a tapered relief, resulting in a lower bill than would be payable under the council tax regime. Different rules may apply where multiple holiday lets are owned and run by the same individual/business.

In order to be eligible, property owners must be able to demonstrate that the property complies with the following criteria:

• That the property will be available for letting commercially as self-catering accommodation, for short periods totalling at least 140 days in the year after the day in question;
• That during the previous year, it was available for letting commercially, as self-catering accommodation, for short periods totalling at least 140 days; and
• That it was actually let commercially, as self-catering accommodation, for short periods totalling at least 70 days.

The term “commercially” has been defined in Section 66(8A) of the Local Government Finance Act 1988 as meaning “on a commercial basis, and with a view to the realisation of profits”. This will usually mean the property being let at market rates and actively advertised, for example through commercial marketing sites and publications. Lettings to friends or relatives at zero or nominal rents will not be covered.

The government has confirmed that the new regulations will take effect a year after they come into force in order to give ratepayers appropriate time to prepare. The new rules will therefore have effect from 1 April 2023, taking into account marketing and letting activity from 1 April 2022.

Holiday let owners will want to make sure that they keep sufficient evidence to show compliance with the criteria for once the rules come into force.  It is also important to notify the VOA early on if your holiday let will no longer comply with the requirements to be assessed under the business tax regime.  Failure to do so could result in a hefty council tax bill when a new assessment is carried out.

If you own holiday let property, or you are thinking of purchasing a holiday let as an investment, you need to take all of this into consideration. At Samuels, we have assisted clients purchasing residential and commercial property for many decades and we have a team of dedicated experts who can assist you at every step of the way. 

Contact us to speak to one of our experts today.