Second Homes & Holiday Lets Tax, Licensing & Business Rates Rules
Latest news and changes
The council tax, business rates and licencing rules for second homes and holiday lets are evolving. This is due to the Governments concerns that the rise in second homes and holiday lets in rural communities is leading to a shortage of affordable housing for locals.
We will update this page with the latest changes to the rules.
Holiday lets register for England
The government is looking to set up a holiday lets register for England, amid concerns that the rise in second homes and holiday lets in rural communities is leading to a shortage of affordable housing for locals.
MPs urged the Government to adopt measures including limiting the number of second homes in communities by changing planning laws and doubling council tax in some of the worst affected areas.
Government launches review into short-term tourist accommodation
The review into the effect of short-term holiday lets will seek to improve the holiday letting market for those living in popular tourism destinations.
The Government is considering include a registration ‘kitemark’ scheme with spot checks for compliance with rules on issues such as gas safety, a self-certification scheme for hosts to register with before they can operate, and better information or a single source of guidance setting out the legal requirements for providers.
For further information visit https://www.gov.uk/government/news/government-launches-review-into-short-term-tourist-accommodation
The call for evidence https://www.gov.uk/government/consultations/developing-a-tourist-accommodation-registration-scheme-in-england/developing-a-tourist-accommodation-registration-scheme-in-england-call-for-evidence
New tax rules for second homes in Wales
The Welsh Government has announced an increase to the maximum level of council tax for second homes, as well as changes to the business rates criteria.
Second home owners face a potential 300% council tax rise
The Welsh government has declared it is increasing the maximum level that local authorities can set council tax on second homes. Currently, the maximum premium councils can charge is 100 per cent – so the new policy constitutes a possible tax rise of 200 per cent.
Business rates criteria changes
The criteria for self-catering holiday lets in Wales qualifying for business rates rather than council tax will also change from next year.
Currently, properties available to let for a minimum of 140 days in any 12-month period, and actually let for at least 70 days, pay business rates rather than council tax. But from April 2023, properties must be available to let for at least 252 days and actually let for at least 182 days in any 12-month period to qualify. If you cannot meet these thresholds, then you will be required to revert to paying Council Tax.
Tourism leaders in Wales say these new letting requirements will frankly be impossible for many self-caterers to meet and will decimate the Welsh tourism industry.
For further information visit the Welsh Government website: https://gov.wales/new-tax-rules-second-homes
Welsh councils to get powers to control numbers of second homes and holiday lets
-Councils will be able to control numbers of second homes and holiday lets under new Welsh government plans.
-Local authorities will also be able to make amendments to the planning system, requiring planning permission for change of use from a primary home, second home and short-term holiday accommodation.
-Work will also begin on allowing councils to apply increased Land Transaction Tax (LTT) on the purchase of second homes and holiday lets.
-A new licensing scheme for people who want to operate short-term holiday lets, such as Airbnb, is also planned.
For further information visit the Welsh Government website: https://gov.wales/new-package-measures-address-high-numbers-second-homes
New licensing laws for short term lets in Scotland
The Scottish government is introducing a licensing scheme for Airbnb owners and short-term holiday let landlords across Scotland. The purpose of the licensing scheme is to ensure short-term lets are safe and address issues faced by neighbours.
Councils will be required to implement a licensing scheme by October 2022. Hosts and operators will need to be fully licensed by 1 April 2024.
The Scottish Government have revealed that there will be a review of licensing in summer 2023, but the precise details of this remain unclear.
For further information visit https://www.visitscotland.org/supporting-your-business/advice/short-term-lets-legislation
A guide to holiday let business rates & council tax
Whether you use your second home for holidays or rent it out to paying guests as a holiday let, you will need to pay either council tax or holiday let business rates. To help you understand the difference between the two, and which you qualify for, we’ve answered the most frequently asked questions in this guide.
What’s the difference between holiday let business rates and council tax?
Holiday home council tax
Council tax is an annual fee that your local council charges for the services it provides in the area.
If your holiday home is mainly used by yourself, family and friends for holidays or is let out for less than 20 weeks per year, it will qualify to pay council tax.
The amount of council tax you pay depends on the value of your home and its location. You can check your holiday home council tax band and the amount of tax you have to pay here: https://www.gov.uk/council-tax-bands.
Holiday let business rates
Holiday let business rates are a tax levied on properties that are let commercially. Similar to council tax, they are used to help pay for local services. If you are letting your holiday cottage commercially, rather than just for your own use, it is likely that you will be subject to paying business rates rather than council tax.
To qualify for business rates in England rather than council tax, your property must be classified by HMRC as a Furnished Holiday Let, rented out for a minimum of 70 days and be available to let short-term for at least 140 days a year.
If the owner cannot provide proof, they won’t be allowed to switch to business rates and will pay council tax.
How to calculate your holiday let business rate
You can calculate your holiday let business rate by using the rateable value (which is calculated by the Valuation Office Agency) based on the rental value of the property and then use the business multiplier set by the government.
If your holiday let is located in England or Wales, the Government has an online tool you can use.
What are the benefits of paying business rates rather than council tax?
If your holiday home qualifies as a furnished holiday let, it is classed as a business and there are various benefits available.
What qualifies as a ‘furnished holiday let’?
Your property will need to meet the following conditions:
- The holiday home is fully furnished
- The property is based in the UK or the European Economic Area (EEA)
- It is available for commercial, short-term lets for 210 days (30 weeks) per year
- The holiday let is let out for at least 105 days (15 weeks) of the 210 days you have made it available
- If your holiday let is rented out by the same person for more than 31 days, there shouldn’t be more than 155 days of this type of ‘long term’ let per year.
If you qualify as a furnished holiday let, you need to register with your local council for business rates.
What is small business rates relief?
If your furnished holiday let property’s rateable value is less than £15,000, you may be eligible for small business rates relief which will reduce the amount of tax you will have to pay. If your property has a rateable value of £12,000 or less, you won’t have to pay any business rates. If, however, your holiday let property’s rateable value is between £12,001 and £15,000, the amount of tax relief you receive will go down gradually from 100% to 0%.
If your holiday let is based in Scotland or Wales, you should note that the tax relief works differently .
In Wales, you should qualify for Small Business Relief if the rateable value is below £12,000, and no business rates would be payable at all if its value is under £6,000.
In Scotland, if your property’s rateable value is below £18,000, you may be able to claim this tax benefit. And in the event its value is below £15,000, you might not have to pay any business rate levy at all.
To apply for small business rates relief, you will need to contact your local council.
Note that business rates are classified as an expense and can be deducted for tax purposes.
Is it cheaper to pay council tax or business rates on my holiday home?
The common consensus is that business rates can often work out cheaper than council tax. As outlined above, there are also certain furnished holiday let tax reliefs that you can benefit from.
It should be noted though that if you don’t pay council tax, your local authority will stop collecting your rubbish and recycling, so you will need to organise and pay for private waste collection.
*At the time of writing (July 2022), we’ve taken all reasonable care to make sure that the information in this article is as up-to-date and accurate as possible.