Owning a holiday property, whether it’s your second home or you run it as a holiday let business, will mean you are responsible for paying tax to the relevant authorities. But, different types of holiday accommodation are treated differently for tax purposes, so it’s important to understand what the distinction is between holiday home council tax and holiday let business rates.
For clarity on which you apply to your situation, read on for answers to frequently asked questions on holiday home council tax and holiday let business rates.
Click on the quick link below to skip to a particular topic or read on to discover all you need to know about holiday home council tax:
What is the difference between holiday home council tax and holiday let business rates?
If you own a property, be it a holiday home that you and your family use, or a self-catering accommodation that is rented out to guests, you will need to pay either council tax or business rates on your property.
The revenue raised will go to help fund vital local services like refuse collection and road maintenance in the area where your holiday let, or holiday home is located.
- Council tax is an annual fee charged by the local council on residential or domestic properties. As with any residential property, a holiday home which is mainly for personal use will be included in this category.
- Business rates are a local tax that is paid on properties that are being used commercially rather than domestically, in the same way that council tax is a tax on domestic properties. A holiday let will fall under this taxable bracket if it meets the letting days criteria.
Do I need to pay council tax on my holiday home?
If you own a holiday cottage, which is used predominantly as your second home or isn’t let commercially on a regular basis, you will need to pay council tax. Working out your council tax on your holiday home will be dependent on the valuation band that it falls in and what the local council charges for that band.
You may pay more council tax for a property you own or rent that’s not your main home. Councils can charge second homes or holiday homes a premium of up to 300%, but this varies by area. Contact your council to find out the council tax rules for holiday lets in your area.
Must I pay council tax on my holiday let business?
No. If your holiday home is classified by HMRC as a self-catering property which is run commercially, you no longer need to pay council tax on the property, but instead, you’ll be liable to pay business rates on your holiday let. This could be beneficial, as you may be eligible for Small Business Rate Relief.
When do I have to pay business rates on my holiday let?
If you are running your holiday cottage as a self-catering business rather than just your own holiday accommodation, it is likely that you will be subject to paying business rates rather than council tax.
If you make your property available for short-term letting periods 20 weeks (140 days) or more per year, and it is actually let for 70 days, it can be registered for business rates rather than council tax. If the property is in Wales, the available letting days rise from 140 to 252 and the property needs to be actually let for 182 days.
Before you can apply for business rates, you will need to meet the letting days criteria. Until then, you will need to pay council tax.
Are business rates cheaper than council tax?
Generally, business rates will work out cheaper than council tax. If you only have 1 holiday let and it qualifies for ‘small business rates relief’ its unlikely you will pay any business rates.
What is small business rates relief?
Your business rates bill will be reduced if your property is eligible for small business rates relief. This means that if your property has a rateable value of £12,000 or less, you won’t have to pay any business rates. Or, if it falls between £12,001 to £15,000, the rate relief will go down gradually from 100% to 0%.
How are business rates calculated for holiday lets?
Business rates vary from property to property. Your holiday let business rates will be calculated according to certain attributes. These range from your holiday home’s size and how many people it can accommodate, to where it is located and its annual turnover.
The amount payable is dependent on your property’s rateable value, which is calculated by the Valuation Office Agency (VOA). Generally, the bigger and more successful your holiday homes business is, the higher the rateable value.
The government has an online tool you can use to check the VOA’s rateable value for your holiday property.
What benefits are available to me as a holiday let owner?
If your property qualifies as a furnished holiday let, it is classed as a business and there are various benefits available.
The main benefit to holiday let owners is the ability to claim capital allowances. If a property you are buying qualifies as a Furnished Holiday Let, consider the value of the embedded fixtures within the property. Embedded fixtures include items such as water, electrical and heating systems, kitchens, bathrooms, carpets etc. This will significantly reduce or eliminate your holiday letting taxable profits in the first few years. If you have never made a claim, it’s not too late if you still own the property.
Claiming capital allowances on embedded fixtures requires the skills of surveyors and capital allowances specialists. For more information, download a guide from Zeal Tax HERE.
For an in depth look at whether you qualify as a furnished holiday let business and subsequently for paying business rates, read our guide to holiday homes, tax and all things in between.
How has the Spring 2024 Budget affected Furnished Holiday Lets?
On 6th March 2024, the Budget included an announcement that the Furnished Holiday Let tax regime would be removed from 1st April 2025. There will likely be a period of transition from that date. Technical guidance is due to be released shortly, which we’ll scrutinise alongside the legislation changes, and will update our information as soon as possible subsequently. As it stands, the tax regime mentioned above is still in existence.
Tax can be a complex subject and differs per individual case, so we always recommend you seek professional advice.
We have teamed up with Zeal Tax, who offer a free tax helpline for Helpful Holidays owners. You can contact Zeal on 01633 499771 or email sykesfamily@gozeal.co.uk or visit www.gozeal.co.uk/sykesfamily
At Helpful Holidays, our team of holiday letting experts are on-hand to offer advice on all aspects of holiday letting, from holiday let business rates to information on tax implications and the benefits of owning a holiday home.
We’re happy to answer any holiday letting queries you may have, so to find out more about letting with Helpful Holidays, request your FREE owners guide today or call our team of experts on 01647 403014 today.
Please Note: The information contained in this article was accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time, so please contact our prospective new owner team if you’d like to hear how. Nothing in this article constitutes the giving of financial, tax or legal advice to you; please consult your own professional advisor (accountant, lawyer etc). in this regard. If we have referred within the article to a third-party provider of unregulated holiday let mortgages, this is due to the fact that such mortgages aren’t currently regulated by the FCA.
As a helpful reminder, your home may be repossessed if you do not keep up repayments on a mortgage, so again anything you decide to do in this particular area this is one on which you should take your own professional advice on too, as we aren’t providing and can’t provide you with this.
