A Guide to Holiday Let Business Rates and Council Tax

When starting a holiday let business, it can be easy to focus on the good reviews and potential earnings, however it's important to consider your outgoings as well - including holiday let business rates.

Read on to discover all you need to know about holiday let business rates.

What are holiday let business rates?

Business rates are charges, similar to council tax, that are taken to help pay for local services. Business rates must be paid on most properties, or parts of properties, that are being used commercially rather than domestically - this includes holiday lets. Business rates will apply to your holiday let if it is available for short-term let, and actually short term let, above a certain threshold depending on where in the UK it is.

Business rates in England

There were some announcements in the Autumn 2024 Budget that impact holiday let business rates:

• For 2025-6, self-catering properties that pay business rates but don't qualify for small business rates relief will be entitled to a 40% discount on their business rates. This is capped at £110,000 per business

• Small businesses will benefit from multiplier that is used to calculate their business rates being kept permanently low from April 2026

Business rates in Wales

Since 1 April 2023, to be eligible for business rates the property will need to be available for short term letting for at least 252 days and actually let for at least 182 days in any 12-month period.

A self-catering business that does not meet the new threshold from 1 April 2023 will pay Council Tax instead of business rates - and in some council areas there are Council Tax premiums for properties which aren’t a main home. The premiums can be set up to 300%, but as of the 2023-24 financial year none are higher than 150% (Gwynedd).  Furthermore, there are currently 12 Councils in Wales that haven’t introduced a premium at all. 

Business rates in Scotland

If your holiday let is in Scotland, you must contact your local assessor about your business rates valuation. If you're operating a self-catering business or a holiday let, you might need to pay business rates. Contact your local assessor if your property is available for short-term letting for 140 days or more, and actually let for 70 days or more, in the financial year (1 April to 31 March). 

 If you are thinking of buying a property to let in Scotland or if you already own a second home and are considering letting it out, then you will need to know about the short term accommodation license scheme.

How to work out holiday let business rates

You can calculate your holiday let business rates by taking the rateable value that's given to your property, and then using the small business multiplier set by the government to estimate how much you will be charged in business rates.

Your holiday let's rateable value

This is an amount calculated by the Valuation Office Agency (VOA), based on your property's rental value.

Calculate your property's rateable value.

How much are holiday let business rates?

To work out your business rates, first take your property's rateable value provided by your local council, and then use the relevant business multiplier to work out your business rates. If your property's rateable value is more than £51,000, you must use the standard multiplier. If your rateable value is lower than £51,000, you can use the small business multiplier which is slightly less.

Business rate multipliers (for properties in England)

Example of how to work out your business rates:

If your property's rateable value was £16,000, you would qualify for the Small Business Multiplier.  Therefore, to work out your business rates, your calculation would be: 16000 x 0.499 = £7,984. 

Small business rates relief

What is small business rates relief?

You may be subject to paying business rates on your holiday let, however some properties will be able to claim small business rates relief, which will bring these costs down. 

Who is eligible for small business rates relief?

In England, your property will be eligible for small business rates relief if its rateable value is less than £15,000. If your property's rateable value is £12,000 or less, you do not need to pay business rates at all. 

If your property's rateable value is between £12,001 and £15,000, the amount of small business rates relief that you will receive will depend on how high or low the rateable value is within this scale. 

To apply for small business rates relief, you will need to contact your Local Council. 

Can you apply for small business rates relief in Scotland and Wales?

Tax relief works differently in both Scotland and Wales. In Scotland, you may be able to claim small business rates relief if the rateable value of your property is below £20,000, and if it's under £12,000, you may not have to pay business rates at all. You apply for the Small Business Bonus Scheme through your Local Council. For more information click here.

In Wales, your property will be eligible for small business rates relief if the rateable value is below £12,000, and will not have to pay business rates at all if it's under £6,000. For more information click here.

For more information on business rates relief and other tax breaks, check out our guide to government financial support for holiday let owners.

Do you pay council tax on holiday lets?

If business rates do not apply to your property, it will instead be liable for council tax. 

As well as this, you will need to organise and pay for any refuse collection as this isn't covered with council tax or business rates. 

Are holiday let business rates different to council tax?

Business rates and council tax are similar in the way that they are both charges applied to fund local services. However, the difference lies with the purpose behind the property in question. 

Council tax is a charge that is applied to residential and domestic properties, which includes holiday homes that are mainly used for personal use ((those that don’t meet the letting/available days threshold to qualify for business rating, see above)). This is the difference between council tax and business rates, as the business rates are charged to more commercial properties, instead of residential. 

How do you qualify as a Furnished Holiday Let (FHL)?

A Furnished Holiday Let (FHL) is a rental property classification in the UK and Ireland that can provide tax benefits to owners. To qualify as a Furnished Holiday Let, your property needs to be: 

To qualify as a Furnished Holiday Let, your property needs to be:

• Fully furnished 

• Available to let commercially for 210 days per year, with the intent to make a profit 

• Actually let out for at least 105 of these days 

• Not occupied by longer term tenants (more than 31 days at a time) for more than 155 days per year 

If your property meets these criteria, and therefore qualifies as a Furnished Holiday Let, then you will be able to obtain tax benefits that are not available to long term lets. 

The tax benefits of qualifying as a Furnished Holiday Let

There are tax advantages to qualifying as a Furnished Holiday Let, these include: 

Holiday lets qualify for capital allowances.  This means you can  deduct costs such as furniture and furnishings  from your holiday let profits and  in most cases, you can also claim capital allowances on part of the purchase price or refurbishment  costs.  More information on claiming capital allowances on a holiday let can be found here.

• Income generated from a FHL property is classed as “relevant earnings” for pension purposes.  This means you can reduce your tax bills by contributing profits to your personal pension.   

• You can split the profits of a FHL between joint owners in any ratio you decide – unlike with long-term rental properties, where profits must be taxed equally between joint owners. 

• When you sell your property, you can claim certain capital gains tax reliefs.

* The information above is shared with you by Zeal. Sykes can’t advise you on, and isn’t responsible for, tax matters in relation to your holiday let and the above should not be taken as such, rather as a prompt of the issues involved for further consideration. As always, please read the relevant laws, regulations and guidance and seek advice from external experts where you require it. Sykes hopes that by pointing you in the direction of an expert in the field, it’s starting you off on the right foot, and you can read into this matter further and seek your own advice from Zeal, or your chosen advisor, as and when you feel it’s needed. We cannot make any representations or warranties of any kind as to the competency, qualification, fitness for purpose, accuracy, reliability, suitability, or availability of Zeal’s offers, products or services. If you choose to enter into any arrangement for the supply of goods or services of a supplier listed in this newsletter or links, you do so entirely at your own risk. Any such arrangement is between you and the supplier. We are not a party to it. We shall not be liable for any loss or damage arising under or in connection with any such arrangement or any action or decisions you take or do not take as a result of reading the above or any loss suffered as a result.

MATT JEFFERY, TAX PARTNER, ZEAL TAX 

There are lots of tax advantages of holiday letting and some pitfalls too! Paying the right amount of tax will ensure you get the maximise possible return on your investment.    If any owners have any tax questions or advice on business rates , you can ask one of our experts using the free Sykes owner's helpline sykes@gozeal.co.uk or call us on 01633 499771