Owning and running a holiday home can be a fantastic and rewarding experience as well as a great return...
Whether you plan to use it for your own holidays or let it out to make a profit, owning a second home will require you to pay certain rates and taxes. Read our guide to holiday let business rates and council tax to help you understand what’s involved in each, and decide which is the most appropriate for your property.
There is a difference between holiday let business rates and holiday home council tax, so it pays to know which you qualify for. To help you understand the difference, we’ve drafted answers to the most commonly asked questions.
Holiday let business rates are a tax levied on properties that are let commercially. The funds are used to help finance local services; in the same way that residents in domestic properties pay council tax, businesses pay business rates to local authorities. Business rates are charged on most non-domestic properties, including self-catering holiday lets.
If you own a second home or holiday home, you will either need to pay holiday let business rates or council tax for your property.
Click on the link below to find your local authority and how much council tax you need to pay:
To determine the appropriate taxes for your property, you need to distinguish whether yours is a second home/holiday home or a holiday let. The major difference between a second home and a holiday let is the amount of time you spend in it.
A second home is defined as a residence which you plan to occupy for part of the year. Properties that are let out for less than 20 weeks per year and used predominantly for your own holidays will qualify to pay council tax.
If your holiday home is in England and used predominately for commercial self-catering accommodation, and is available to let for 20 weeks (140 days) or more in a year, then you should be registered for business rates rather than council tax.
On the upside, a self-catering holiday let can be treated as a trade business, provided that the conditions of the Furnished Holiday Let rules are met. Many such properties are likely to qualify for Small Business Rate Relief, which provides relief from business rates.
The owners of some Furnished Holiday Let properties pay no council tax or business rates, as their property qualifies for Small Business Rates Relief providing 100% exemption.
To take advantage of the tax benefits the government offers, a property needs to adhere to strict requirements to qualify as a Furnished Holiday Let.
If you qualify as a Furnished Holiday Let for tax purposes, then you need to register with your local council for business rates.
For an in depth look at how to qualify as a Furnished Holiday Let and the tax relief and benefits available, read our Furnished Holiday Let tax guide 2021 for detailed information.
Yes – if you qualify as a Furnished Holiday Let, business rates are an expense of the business and deductible for tax purposes, subject to the normal rules.
Visit the HS253 Furnished Holiday Lettings guide for in depth detail.
Business rates are calculated in a two-step process. First, your holiday home will be given a rateable value. Second, the rateable value is multiplied by the unique business rate as set out by the government.
Step 1: Find the rateable value of your business:
Your holiday let will have a ‘rateable’ value based on the rental value of the property. The local property tax you pay depends on your property type, size, location and the income you could receive. Your local authority will calculate the business rates for your property based on its ‘rateable value’.
Step 2: Work out your holiday let business rates:
To work out your business rates you must have the rateable value of a property as given to you by your local council. The rateable value of your property is then multiplied by the uniform business rate as given by the government. If your rateable value is less than £51,000 you qualify for the small business multiplier rather than the standard multiplier. The small business multiplier is £0.491 and the standard multiplier is £0.504.
*Information from HMRC website (2021)
Example of how to work out your business rate:
John owns a holiday home in Salcombe that qualifies as a holiday let business. The rateable value of his property is £10,000, so he uses the small business multiplier to estimate the annual business rate.
£10,000 (rateable value) x £0.499(small business multiplier) = £4,990 (basic business rates)
The good news is, because the rateable value of his holiday let is less than £15,000 he may be able to reduce the cost by applying for Small Business Rate Relief.
Whilst your holiday let may be subject to business rate property tax, you may be able to claim Small Business Rate Relief, which will reduce the amount of tax you will have to pay.
Small Business Rate Relief is available to businesses in England where the rateable value of the property is less than £15,000. Businesses with a rateable value of up to £12,000 receive 100% relief, while businesses with a rateable value between £12,000 and £15,000 receive tapered relief from 0% – 100%.
Visit the HMRC page for information on Small Business Rate Relief.
In an effort to support retail, hospitality and leisure businesses in England affected by the COVID-19 pandemic, the government introduced a business rates relief scheme in April 2020. Holiday let owners who qualified to pay business rates were given a 12-month payment holiday for 2020/2021. This scheme was extended by the government, who have since confirmed it will continue to offer 100% business rates relief extended to April 2021. If you qualify, you do not need to take any action, your local council will apply the discount automatically.
If you do pay business rates on your holiday let, you can estimate the business rate relief using the business rates calculator.
If you have any queries regarding the business rates relief scheme and think you’re not getting the relief you are entitled to, click here to contact your local council.
For further guidance and additional measure being put in place to assist holiday let owners during the pandemic, read our blog on COVID-19: UK Government financial support.
For further clarification and to ensure that you have all the details that you require to run your holiday let, click here to contact your local council to find out about your business bates bill, Small Business Rate Relief or to pay your bill. Follow the link which will take you to your property’s local council website, where they will be information that can help you reduce your business rates if you meet the required criteria.
Let your property with the South Devon experts
If you would like to find out more about letting your holiday home, call our experienced team on 01548 843773 (option 2) or visit our Let Your Cottage page to request a free Owners Guide today.
* At the time of publishing, Coast & Country Cottages has taken all reasonable care to ensure that the information contained in this article is accurate. However, no warranty or representation is given that the information is complete or free from errors or inaccuracies. Generic information is contained within this article and each individual’s tax affairs are different, further advice should be sought from an accountant.