If you're planning to let out your property as a holiday home for the 2023 season, you need to be aware of the holiday let business rates and council tax. These are two separate taxes that may apply to holiday homes, and both come with their set of rules and regulations.
This guide will walk you through everything you need to know about holiday lets and business rates. We'll explain how holiday let council tax and business rates work in the UK so that you can make informed decisions about your property. You'll also learn how to calculate your business rates, claim deductions or exemptions, and stay on the right side of the law.
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What are Holiday Let Business Rates and Council Taxes?
The holiday let business rate is a tax applied to properties rented out as holiday lets. The business rate tax is also applicable to shops, offices, pubs, warehouses, and factories. Business rate bills always come around February or March for the following tax year. The fee you pay will depend on your properties and how many days you let it each year.
In other words, it's based on the number of bedrooms your property has and whether it is furnished. Business rate tax is only applicable when you let your property for more than 20 weeks (140 days) per year.
Council tax, on the other hand, is levied by the central government on most residential properties in the UK. It's a compulsory payment even if you're only letting your property out for a short period. This tax is also influenced by the value of the property and its location. The government uses both charges to fund local services such as schools and roads.
What is the Difference Between Holiday Let Business Rates and Council Tax?
- Council tax is paid on domestic and residential properties, while business rates are paid on commercially let properties.
- Business rates are calculated using the property's rateable value and multiplier set by the government. In contrast, council tax is calculated with the value of the property and the number of people who live in it.
- Business rates are set by the central government, while individual and local authorities set council tax.
Should I Pay Business Rates or Council Tax On My Holiday Lets?
Unless your property is exempt, you are required to pay business rates or council tax on holiday homes. Holiday let business rates and council tax can be high for those running a holiday let business. But you don't have to pay both taxes at the same time.
So do you pay council tax on a holiday home or holiday let business rates? The answer to this question is determined by how you use your holiday home, either as a short-term holiday rental or a second home.
If your property is available for letting for at least 140 days per year, you should register for business rates rather than council tax. This is because your property is considered a business and is therefore liable for the business rate.
However, if you let out the property for less than 140 days per year and occupy it frequently, it may be classified as residential property, so you would need to pay council tax instead. Keep in mind that these laws vary depending on your location.
For example, the government of England and Wales have announced that the criteria for being officially considered a holiday let and liable for business rates will change in 2023.
By 1 April 2023 in England;
- A property will only be valued for business rates if it's available to let for at least 140 days in total over the previous and current tax years.
- If it's commercially let for at least 70 days in the last 12 months.
By 31 March 2023 in Wales;
- A property will be valued for business rates if it's let for at least 252 days in a year.
- If it's commercially let for at least 182 days in any 12 months period.
The best way to determine which category your property falls into is to contact your local authority. Another thing to remember is that even if your property is classified as a business, you may still be eligible for certain discounts and exemptions on your business rates. Find out how you can claim tax relief in our complete guide to holiday let taxes.
How are Business Rates Calculated?
The Valuation Office Agency (VOA) assesses your property's rental value, called the Rateable Value (RV). Your local authority sets a business rates multiplier, and for England, the central government sets the multiplier.
To calculate your business rates, take your property's rateable value provided by your local council. Then multiply this figure by the appropriate business multiplier. If your property's rateable value is over £51,000, you must use the standard multiplier. If less, the small business multiplier will apply.
For example, if your RV is £20,000 and the multiplier is £0.499 (small business multiplier), your business rates bill would be £10,000 per year. The standard multiplier is £0.512.
However, if the rateable value of a holiday home is less than £15,000, the property owner may pay a lesser business rate by applying for Small Business Rate Relief.
How to Register a Holiday Let for Business Rates
If you want to register a holiday let for business rates, there are a few steps you'll need to take. First, you'll need to contact your local authority and tell them you're running a holiday let business.
Next, you'll need to provide them with basic information about your property, including the address, the size of the property, and how many bedrooms it has.
Once you've done that, you'll need to complete a self-assessment form and submit it to your local authority. This form will ask you questions about your business, including how much income you're generating and what expenses you're incurring.
Finally, once your local authority has all of the necessary information, they'll be able to calculate your business rates and send you a bill. Once you've paid your business rates, you'll be able to operate your holiday let business legally.
Exemptions and Discounts for Holiday Let Business Rates and Council Tax
There are a few exemptions and discounts that you might be eligible for when it comes to council tax and holiday let business rates. First, if your property is unoccupied for three months, you may be exempt from paying business rates.
Second, you may be eligible for some reliefs on your business rates if you furnish your holiday let. The government recognises furnished holiday lets as a business, so they benefit from small business rate relief.
The furnished holiday let business rates mean you are entitled to capital gains tax relief for traders. Also, you can claim capital allowances for items such as fixtures, furniture, and equipment.
If you live in England, you may be eligible for a Council Tax Reduction. This is a discount that is available to people with a low income or those who are unemployed. The amount of the discount will depend on the person's unique circumstances.
How To Qualify as a Furnished Holiday Let (FHL)
To qualify as a furnished holiday let, your property must meet the following criteria:
- It must be furnished to a high standard. This includes having enough furniture and furnishings to accommodate paying guests comfortably.
- It must be available for at least 210 days per year.
- You must let it for at least 105 days per year.
- It must generate enough income to cover all associated costs, such as mortgage interest, insurance, and maintenance.
- It must be situated in the UK or any of the countries in the European Economic Area (EEA).
Paying business rates or council tax demonstrates your commitment to the local community in which your property is located. Remember, these rates and taxes can vary depending on your location, so it's essential to consult the local authority before you commit to anything.
FAQs About Holiday Let Business Rates
How Do I Avoid Business Rates in my Holiday Let?
You cannot avoid paying business rates entirely if you're running a retail business such as a holiday let, restaurant, or bar. However, you can qualify for discounts by ensuring your property is classified as a furnished holiday let. You can do this by renting it out for at least 105 days a year and providing full furnishings.
Is it Cheaper to Pay Business Rates or Council Tax?
It depends on the value of your property. If your property is worth less than £12,000, you'll probably find that council tax is cheaper. If it's worth more than £51,000, business rates will probably be more affordable.
Do I Need a Business Account for a Holiday Let?
No, you don't need a business account for a holiday let. You can use a personal account as long as you can keep track of all income and expenditures on your holiday let. Otherwise, you should open a business account.
Do I Have to Pay Council Tax on Holiday Chalets?
Yes, you must pay council tax on holiday chalets, provided you use it as your second home or rent it out for less than 140 days per year.
Which Businesses are Exempt From Business Rates?
Some businesses are exempt from business rates, including agricultural ventures, religious organisations, and buildings used for training or the welfare of disabled people.
Do Landlords Have to Pay Business Rates on an Empty Property?
No, a landlord is not liable for business rates on an empty property for three months. After this time, the business must pay full business rates.