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Buying a holiday let and renting it out is an exciting and potentially lucrative venture. But, whether you’re new to the holiday cottage market or are investing in further properties, there are some practical considerations to think about to avoid any financial headaches.

Holiday home council tax and business rates are two areas you’ll need to understand to succeed. To help you get to grips with them, here we answer some common questions.

Do I Have to Pay Council Tax on my Holiday Home?

If you have a second home for personal use that is not a commercial venture, you’ll need to pay council tax. However, if you make your holiday home available to rent for short periods over 20 weeks or more in a year (140 days), it’s classed as a self-catering property and you should register it for business rate property tax rather than paying council tax on holiday lets. The rules vary in Scotland and Wales – read more on these below and contact your local assessor for further information.

There are some tax reliefs available, though, that you should know about, such as Small Business Rates Relief and relief for properties classed as a Furnished Holiday Let.

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What is a Furnished Holiday Let and How Does it Impact Council Tax?

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:

  • Furnished – the rules don’t specify to what extent but if you provide everything holidaymakers will need, you should be well within the rules.
  • Let commercially with the intent to make a profit.

Your property will be in a “probationary period” during its first year before its status as an FHL becomes permanent. During this period, it must be available to rent for 210 days and be let commercially as a holiday property for 105 days. There shouldn’t be more than 155 days of extended lettings of more than 31 days by the same person.

It’s important to note that as Furnished Holiday Lets must be available to rent for 210 days a year, you will be liable to pay business rate property tax rather than council tax.

The benefits of being classed as a Furnished Holiday Let include:

  • You can claim capital allowances on your property, meaning you can furnish it to a high standard, for example, and deduct the cost from your pre-tax profits.
  • Income generated from a FHL property is classed as “relevant earnings” for pension purposes.
  • You can split the profits of a FHL between yourself and your spouse flexibly for tax purposes – unlike with long-term rental properties where profits are divided based on the official ownership split.
  • When you sell your property, you can claim certain Capital Gains Tax reliefs.

Find out more information and benefits in our comprehensive 2019 Tax Guide: Furnished Holiday Lets.

What are Holiday Let Business Rates?

Holiday let properties in England and Scotland that are available to let for short periods totalling 140 or more days in a year will be classed as self-catering and valued for Holiday Let Business Rates. Business rates are a tax to help to pay for local services.

In Wales, properties will be classed as self-catering and valued for Holiday Let Business Rates if they are available to let for 140 days or more AND are actually let for 70 days or more.

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.

Business rates in Scotland are calculated differently. Find out more about these in our guide Holiday Let Rules and Regulations in Scotland.

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Will my Holiday Let Qualify for Small Business Rates Relief?

Some properties will be eligible for discounts on their business rates. In England, you are eligible for Small Business Rate Relief if your property’s 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, while properties with a rateable value of between £12,001 and £15,000 will be eligible for relief on a sliding scale from 100% down to nothing.

You’ll need to contact your local council to apply for Small Business Rates Relief.

Tax relief is handled differently in Scotland. You may be entitled to relief under the Small Business Bonus Scheme if the rateable value of your property is less than £18,000 and may not have to pay any business rates if it’s less than £15,000.

In Wales, you are eligible for Small Business Rate Relief if the rateable value of your property is less than £12,000 and may not have to pay any rates if it’s less than £6,000.

* At the time of updating (28th August 2019), Sykes 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.

Let your property with Sykes and earn up to £125,000 per year*

  • Join over 15,000 holiday properties already working with Sykes Cottages
  • We welcome over 26 million web visitors a year
  • Many of our owners achieve more than 45 bookings a year
  • We specialise in turning your holiday property into a profitable year-round income for you

*Based on a 7 bedroom property in the Lake District with bookings between October 2017 to September 2018.

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