September 2024

Business Rates

In recent years, the popularity of holiday homes in the UK has surged, driven by the growing trend for staycations and short-term rentals through platforms like Airbnb. However, owning a holiday property can bring a unique set of financial considerations, especially when it comes to local taxation. UK holiday homeowners may encounter the need to navigate between council tax and business rates, depending on how their property is used. Here's a closer look at how registering for business rates works and its relationship with council tax, particularly considering recent changes regarding second homes.

What Are Business Rates?

Business rates are taxes on properties that are used for commercial purposes, akin to council tax for residential properties. In the case of holiday lets, property owners can elect to register their property for business rates, provided it meets specific criteria set by the government. Business rates are calculated based on the property’s rateable value, which is an estimate of the property's rental value on the open market.

The key benefit of registering for business rates is that small businesses in the UK can take advantage of Small Business Rate Relief (SBRR). If a property’s rateable value is below £15,000, owners may be entitled to significant discounts, including up to 100% relief, effectively reducing their tax bill to zero. This has made the option of business rates attractive to many holiday homeowners.

How Does a Holiday Property Qualify for Business Rates?

To qualify for business rates rather than council tax, a property must meet certain usage criteria:

1. Availability for letting: The property must be available to rent to holidaymakers for at least 140 days each year.
2. Actual letting: The property must be rented out for at least 70 days during the year.

If the property meets these requirements, the owner can apply to the Valuation Office Agency (VOA) to have the property assessed for business rates instead of paying council tax. This change in classification allows the owner to access the benefits associated with business rates, including SBRR.

Double Council Tax Bills for Holiday Properties

In response to growing concerns about second homeownership and its impact on local housing availability, some local authorities have introduced policies to discourage properties from sitting vacant for much of the year. One such policy is the imposition of double council tax bills on second homes or properties that are not a primary residence.

This is intended to incentivise property owners to either occupy, or rent out their homes more frequently, rather than leaving them unused for large portions of the year, which can exacerbate housing shortages in certain areas. Local councils, particularly in popular tourist destinations, have been at the forefront of such measures.

For holiday property owners, this means that if their property doesn’t meet the criteria for business rates or is not actively rented out, they may be subject to these higher council tax rates. 

Navigating the Two Systems

For holiday homeowners, understanding whether their property is liable for council tax or business rates — and the potential costs associated with each — is crucial. Here’s a breakdown of how to manage this:

1. Council Tax: If the property is used solely as a second home and isn’t rented out frequently, the owner will likely be subject to council tax. Depending on the local authority’s policies, this could include a higher rate of council tax for second homes.
2. Business Rates: If the property is actively let out to holidaymakers, and it meets the 70-day letting rule, it can qualify for business rates. Registering the property for business rates opens up the possibility of applying for SBRR, which can significantly reduce or even eliminate the tax bill.

Recent Changes and Future Considerations

The UK government is increasingly focused on tightening regulations around holiday lets and second homes to ensure they are contributing fairly to local economies and not exacerbating housing shortages. In 2023, stricter rules were introduced in Wales, requiring holiday properties to be available for rent for at least 252 days per year and let for at least 182 days to qualify for business rates. These changes have made it harder for some properties to avoid council tax and qualify for business rates.

Additionally, the government has announced plans to ensure that holiday lets in England are subject to more scrutiny, including potentially increasing the number of days properties need to be rented out to qualify for business rates. As such, owners of holiday properties should stay informed about local and national policy changes, as they could significantly impact the tax liabilities associated with their properties.

Conclusion

For UK holiday property owners, the option to register for business rates instead of paying council tax can offer substantial savings, particularly with the availability of Small Business Rate Relief. However, the tightening of regulations around holiday lets and second homes, including the introduction of double council tax bills in some areas, means that property owners need to carefully manage how their properties are used to optimise tax benefits.

Balancing the benefits of registering for business rates with the need to meet letting criteria, while also navigating the risk of paying higher council tax on second homes, requires careful planning. As this area of policy continues to evolve, holiday homeowners will need to keep abreast of legislative changes to avoid financial pitfalls.  

Bournecoast Property Agents offer a trusted holiday lettings service to landlords. We currently manage hundreds of properties, each of which is administered according to the landlord's specific needs, whether they are seeking a premium income through holiday and winter lets, or a greater degree of security provided through long term lets. Our landlords also benefit from a range of the following services and benefits.

• 3rd generation family business providing quality accommodation for over 60 years in Bournemouth, Poole, Christchurch and the surrounding areas.
• A true commitment to our landlords, some of whom have been registered with since when the Directors’ grandfather was running the company.
• National advertising, through features, national publications and Social Media campaigns.  
• A marketing team who work tirelessly on developing marketing campaigns to generate more holiday bookings for our clients.
• Bournemouth, Christchurch & Poole Tourism membership and advertising through the local Destination Tourism Associations.
• A dedicated customer service department and out of hours service for all managed properties.
• We have a large database of existing clients that book with us year after year.
• The option to have linen and towels provided at the property at no additional cost to yourself.
• External portal website advertising (airbnb - booking.com - vrbo).
• Dedicated staff each with a significant role to play in the managing of your property, through the summer and winter periods.

Click here to read reviews about the Bournecoast services.  If you need further support, please telephone our friendly team on 01202 437 888 or contact them here.