Summary of contents for UK Tax advice for Furnished Holiday Let:

• Council Tax vs Business Rates – which is which?
• Do I need to pay Council Tax or Business Rates on my Holiday Let?
• How are business rates calculated on a holiday let?
• What is small business rate relief?
• When would I revert from Business Rates back to Council Tax?

Taxes are levied on properties by Councils to help pay for local services. These come in the form of Council Tax, or instead, in the form of Business Rates on Holiday Lets and Furnished Holiday Lets. 

The exciting part is that your Holiday Let/FHL property might qualify for up to a 100% reduction in Business Rates through Small Business Rates Relief. 

This guide takes you through what’s involved from start to finish to optimise your tax bill, including all the website links you’ll need.

1. Council Tax vs Business Rates – which is which?

Council tax is a local taxation system used in the UK on domestic properties. It is an annual fee that your local council charges to pay for local services. The amount you pay depends on the value of your home and its location.  Your holiday home will be liable for council tax unless you qualify for Business Rates and associated reliefs.

Click on the link below to find out how much Council Tax you need to pay on your property:

Pay your Council Tax - GOV.UK (www.gov.uk)

Business Rates are charged instead of Council Tax on properties that are let commercially including qualifying holiday lets, and like Council Tax are used to pay for local services. 

If you own a second home or holiday home, you will either need to pay holiday let business rates or council tax for your property….

2. Do I need to pay Council Tax or Business Rates on my Holiday Let?

If your property qualifies as a Holiday Let or Furnished Holiday Let [Click here to discover qualification criteria] then you should register for business rates rather than council tax. You, as the registered home owner, will need to register with your local council.

Please note: you may on rare occasions need to apply for a Change of Use of your property from one category to another. In addition, in some circumstances, you may need Planning Permission for any works you will carry out on the property. Please refer to your local council for confirmation where necessary, and if appropriate we recommend that you consult a legal advisor.

3. How are business rates calculated on a holiday let?

1. Find the rateable value of your property (click this link for England and Wales) Scotland (click this link for Scotland)

This is based on an estimate of its annual open market rental value.

2. Check the table to find out which ‘multiplier’ to use.

Use the standard multiplier if your rateable value is £51,000 or more.
Use the small business multiplier if your rateable value is below £51,000.

Please note that variations of the rules above if:

• Your property is in Scotland
• your property is in the City of London

3. Multiply your rateable value by your multiplier. This shows you how much you will have to pay in business rates (before any relief is deducted).

Example of how this works:

Amy has a second home in Brighton that qualifies as a holiday let business. The property’s rateable value is £11,500. 

Amy multiplies the rateable value by the small business multiplier to estimate the annual business rate.

£11,500 (rateable value) x £0.499(small business multiplier) = £5,739 is her business rates charge for 12 months.

Full details can be found on the UK Government website: Estimate your business rates - GOV.UK (www.gov.uk)

The good news is because the rateable value of Amy’s holiday let is less than £15,000 she may be able to reduce the cost by applying for Small Business Rate Relief.

4. What is small business rate relief?

The government introduced the Small Business Rates Relief Scheme (SBRR) to lower overheads for small property businesses, thereby freeing up cash to invest in growth. 

Please note, that relief is not automatic in England and Scotland, you have to apply for it, so please don’t miss out! 

It's also important to understand that Councils should allow you to backdate your relief claims up to 6 years. So if for some reason you have owned a qualifying property for more than a year and have missed out on claiming relief, act now and apply with your local council to claim what is due to you. 

England

Apply for relief by contacting your local England council here: Contact your local council  

Holiday Let businesses with a single property:

Small Business Rate Relief is available where the rateable value of your Holiday Let is less than £15,000. Businesses with a rateable value of up to £12,000 receive 100% relief. While businesses with a rateable value between £12,000 and £15,000 receive tapered relief from 0% – 100%.

For example, if your rateable value is £13,500, you’ll get 50% off your bill. If your rateable value is £14,000, you’ll get 33% off.

Businesses with more than one property:

When you get a second property, you’ll keep getting any existing relief on your main property for 12 months.

You can still get small business rate relief on your main property after this if both the following apply:

Full details are available on the UK Government website here: Small Business Rate Relief.

Wales

The SBRR scheme in Wales is administered by local authorities and is automatically applied to the bills of eligible ratepayers. We recommend that you check with your local council to ensure your eligibility has been assessed correctly.

Holiday Let businesses with a single property:

Download full guidance on Small Business Rates Relief in Wales.

Businesses with more than one property:

The number of properties eligible for SBRR is limited to two properties per business in each local authority.

Scotland 

Apply for relief by contacting your local England council here: Small Business Bonus Scheme - mygov.scot

The scheme is slightly different in Scotland.

You can get non-domestic rates relief through Scotland’s Small Business Bonus Scheme if:

• the combined rateable value of all your business premises is £35,000 or less
• and, the rateable value of individual premises is £18,000 or less
• the property is actively occupied

Based on the total (cumulative) rateable value of all your non-domestic premises, the following relief is available:

• total rateable value up to £15,000 - 100% relief (no rates payable) on each individual property
• the total rateable value of £15,001 to £35,000 - 25% relief on each individual property with a rateable value of £18,000 or less

You can save a maximum of £7,470 in 2022-23.

5. When would I revert from Business Rates back to Council Tax?

Deregistration happens as soon as the property is either sold, used privately or the letting conditions are no longer satisfied. This information will be communicated in your annual tax return.

This information was updated on 30 April 2022 and consists of generic information freely available in the public domain. Pass The Keys 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.

For specific advice appropriate for individual circumstances please contact an appropriately qualified tax advisor or accountant. We work with Chris Haley at Rethink Tax. Chris will answer your questions free of charge where possible, and where more in depth knowledge of your personal situation is required he offers a reduced consultation fee for PTK customers.