Many questions have been floating around over the past year about ‘how to remotely manage your holiday let’...
When starting a holiday let business, it can be easy to focus on the good reviews and potential earnings, however it’s important to consider your outgoings as well – including holiday let business rates.
Business rates is a tax charged to commercial properties that are used to fund local services. When working out your costs and outgoings, it is important to know how much you’re paying in business rates on your holiday let.
Read on to discover all you need to know about holiday let business rates.
What are holiday let business rates?
How to work out holiday let business rates
Do you pay council tax on holiday lets?
Are holiday let business rates different to council tax?
How do you qualify as a Furnished Holiday Let (FHL)?
Small business rates relief
Business rates relief (COVID-19)
Business rates are charges, similar to council tax, that are taken to help pay for local services. Business rates must be paid on most properties, or parts of properties, that are being used commercially rather than domestically – this includes holiday lets. You will need to pay business rates on your holiday let if it is available for short-term letting periods totaling at least 140 days per year.
Business rates are worked out based on your property’s rateable value. The Valuation Office will work out a rateable value based on its open market value on 1 April 2015.
You will have to pay business rates on holiday lets in Wales if your property is both available to let for at least 140 days, and is actually let for at least 70 days in a year.
If your holiday let is in Scotland, you must contact your local assessor about your business rates valuation – the same business rates criteria as Wales will apply in Scotland from April 1st 2022.
You can calculate your holiday let business rates by taking the rateable value that’s given to your property, and then using the small business multiplier set by the government to estimate how much you will be charged in business rates.
This is an amount calculated by the Valuation Office Agency (VOA), based on your property’s rental value.
To work our your business rates, first take your property’s rateable value provided by your local council, and then use the relevant business multiplier to work out your business rates. If your property’s rateable value is more than £51,000, you must use the standard multiplier. If your rateable value is lower than £51,000, you can use the small business multiplier which is slightly less.
Business rate multipliers
Example of how to work out your business rates:
You only need to pay council tax on a second home if your property is being used personally, and not commercially. You do not need to pay council tax on a holiday let, however you will need to register your property for business rates if your property is available for letting for at least 140 days in a year.
There are certain holiday let tax reliefs that you can benefit from, such as Small Business Rates Relief, as well as advantages for properties that qualify as furnished holiday lets.
Business rate rules do differ depending on which country your holiday let is in. Read more about business rates in Scotland and Wales below.
Business rates and council tax are similar in the way that they are both charges applied to fund local services, however the difference lies with the purpose behind the property in question.
Council tax is a charge that is applied to residential and domestic properties, which includes holiday homes that are mainly used for personal use (available for letting for less than 140 days per year). This is the difference between council tax and business rates, as the business rates are charged to more commercial properties, instead of residential.
A Furnished Holiday Let (FHL) is a rental property classification in the UK and Ireland that can provide tax benefits to owners. To qualify as a Furnished Holiday Let, your property needs to be:
If your property follows this criteria, and therefore qualifies as a Furnished Holiday Let, then you will be liable to pay business rate property tax rather than council tax.
There are advantages to qualifying as a Furnished Holiday Let, these include:
Find out more information and benefits in our comprehensive Furnished Holiday Let Tax Guide.
You may be subject to paying business rates on your holiday let, however some properties will be able to claim small business rates relief, which will bring these costs down.
Your property will be eligible for small business rates relief if its rateable value is less than £15,000. If your property’s rateable value is £12,000 or less, you do not need to pay business rates at all.
If your property’s rateable value is between £12,001 and £15,000, the amount of small business rates relief that you will receive will depend on how high or low the rateable value is within this scale.
To apply for small business rates relief, you will need to contact your local council.
Tax relief works differently in both Scotland and Wales. In Scotland, you may be able to claim small business rates relief if the rateable value of your property is below £18,000, and if it’s under £15,000, you may not have to pay business rates at all.
As a result of the impact that the COVID-19 pandemic had on the retail, hospitality and leisure industries, the government announced a business rates holiday for businesses in England within these sectors. The business rates holiday offered relief from paying business rates for the 2020-2021 tax year.
If your property is eligible for business rates relief, your local council will automatically process this for you.
You are entitled to the business rates holiday for the 2021-22 tax year if your property is associated with the below:
For more information on business rates relief and other tax breaks, check out our guide to government financial support for holiday let owners.
* At the time of updating (5th July 2021), Sykes Holiday 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.
*Based on a 7 bedroom property in the Lake District with bookings between October 2017 to September 2018.
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