Holiday Let Business Rates – Top Tips

Post Update: Following the Government’s announcement in January 2022, please read this article.

If you are running your holiday home as a business and generate a high volume of bookings throughout the year, it is quite likely that you will be subject to paying business rates rather than local council tax. In this article, we discuss holiday let business rates and how they affect holiday home owners.

What are holiday let business rates?

Business rates are a type of tax, paid on non-domestic properties, such as shops, offices and holiday homes.

The rules for holiday let business rates

Once your holiday let accommodation officially becomes a Furnished Holiday Let, it is mandatory to register for and pay business rates. Note: Once the government removes the status of furnished holiday lets, we believe the business rate rules will remain in place.

This means that holiday home owners don’t have an option, they have to switch from council tax to business rates.

According to HMRC:

“If your property is in England and available to let for 140 days or more per year, it will be rated as a self-catering property and valued for business rates.”

“If your property is in Wales and both available to let for 140 days or more per year and actually let for 70 days, it will be rated as a self-catering property and valued for business rates.”

Note: these regulations are set to expire from April 2025 onwards.

What is a furnished holiday let?

Until April 2025, to qualify as a furnished holiday let, you must adhere to specific guidelines set by HMRC.

These guidelines include a number of occupancy conditions, all of which must be met. Firstly, to qualify as a furnished holiday let, ‘your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year.’

Furnished holiday let rules also state that ‘you must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.’

The third rule concerns the pattern of occupation. While you can rent out your property for a longer term (defined as 31 days or more), there are limits. For example, the total of your longer lettings cannot exceed 155 days in the year.

The full details of Furnished Holiday Let criteria and business rate rules & stipulations can be found on HMRC’s website.

How holiday let business rates are calculated

Business rates vary from property to property. The amount payable is dependent on your property’s ‘rateable value’. This amount is calculated by the Valuation Office Agency, part of HMRC. Home owners can find out their property’s rateable value via HMRC’s website.

There are certain factors that will affect your holiday let business rates. For example, the property’s size, its location, its annual turnover and how many people it can accommodate. Roughly speaking, the bigger and more successful your holiday homes business is, the higher the rateable value.

Home owners can estimate their business rates online. According to HMRC, you can calculate your business rates estimate by, ‘multiplying the rateable value by the correct ‘multiplier’ (an amount set by central government).’

Small business rates relief

What is a small business rates relief?

Small business rates relief permits some property owners to pay lower or no business rates. Whether your property is eligible or not depends on its rateable value. You can apply for small business rates relief if your rateable value is calculated to be less than £15,000.

Some properties are eligible for tax reliefs, specifically small business rates relief. You can apply for small business rates relief if your rateable value is calculated to be less than £15,000.

If your property’s rateable value is less than £12,000, you will be completely exempt from paying business rates. For rateable values between £12,000 and £15,000, your business rates will be reduced from 100% to 0%.

To put this into context, at the time of writing (March 2019), a typical 2-bedroom cottage in the Cotswolds will most likely have a rateable value below the £12,000 limit and so its business rates will probably be nil. However, a 6-bedroom detached, country home generating letting income in excess of £80,000 per annum will likely have a rateable value over £15,000 and so will probably pay business rates at a level higher than they would have if they just paid council tax.

You may also be able to benefit from small business rates relief if you have two properties. This will depend on the properties’ separate and combined rateable values.

Council tax versus business rates:

Business rates and council tax have a similar purpose, in the sense that the funds from both go towards supporting local services and authorities. The difference is that council tax is paid on domestic properties, whereas business rates are paid on commercial properties.

Do you pay council tax on holiday lets?

If your holiday let property is subject to business rates, you will no longer be required to pay council tax. This can be beneficial as business rates can work out cheaper than council tax! The only instance in which you would have to pay council tax on your holiday let would be if you were using the property for personal reasons, and not renting it out for significant periods during the year.

Local council tax

Keep in mind that if your property is subject to business rates, you will no longer be required to pay council tax – this can be beneficial as business rates can work out cheaper than council tax!

However, when you stop paying council tax, the council will stop collecting your refuse, and so you will need to make plans for private waste collection.