Understanding Council Tax and Business Rates for Holiday Lets

Navigating the financial responsibilities of owning a holiday let can be complex. One critical aspect is understanding the distinction between council tax and business rates.  

This Lyme Bay Holidays guide to understanding tax for holiday lets aims to clarify these differences and help you determine which applies to your property.​  

What Are Business Rates?

Business rates are taxes levied on properties used for commercial purposes, including holiday lets. If your property is available for short-term rental beyond a certain threshold, it may be classified as a business and subject to these rates.​ 

Eligibility Criteria for Business Rates in England 

As of April 1, 2023, to qualify for business rates in England, your holiday let must meet the following conditions:​  

• Available for commercial letting: The property should be available to let for short periods totalling at least 140 days in the previous and current tax years. 

• Actually let: It must be actually let for at least 70 days in the last 12 months.​If these criteria are not met, the property will be assessed for council tax instead. ​ 

Council Tax Implications 

Properties not meeting the business rates criteria are liable for council tax. Recent legislative changes have allowed local councils to impose a 100% premium on second homes, effectively doubling the council tax for such properties. ​Dorset is one of these regions.

Small Business Rate Relief (SBRR) 

Owners of holiday lets with a rateable value below £15,000 may be eligible for Small Business Rate Relief:​ 

• Rateable value under £12,000: Eligible for 100% relief, meaning no business rates are payable. 

• Rateable value between £12,001 and £15,000: Eligible for partial relief on a sliding scale.​ 

This relief can significantly reduce operating costs for qualifying properties. ​ 

Furnished Holiday Let (FHL) Status 

Achieving FHL status can offer additional tax benefits. To qualify, your property must:​ 

• Be available for letting at least 210 days per year. 

• Be actually let for at least 105 days per year. 

• Not be let to the same tenant for more than 31 consecutive days.​ 

Benefits of FHL status include:​ 

• Eligibility for capital allowances on furniture and fixtures. 

• Profits counted as relevant earnings for pension contributions. 

• Potential capital gains tax reliefs upon sale.​ 

Regional Variations

It’s important to note that criteria for business rates and FHL status can vary across the UK:​ 

• Wales: From April 2023, properties must be available to let for at least 252 days and actually let for 182 days to qualify for business rates.  
• Scotland: Requirements include availability for 140 days and actual letting for 70 days. ​

Which option is for you? 

Understanding whether your holiday let is subject to council tax or business rates is crucial for financial planning. If you are currently paying council tax on your property that you holiday let with Lyme Bay Holidays, you may be eligible to switch to business rates.  

Meeting the criteria for business rates and FHL status can offer significant tax advantages. Always consult with a financial advisor or your local council to ensure compliance with current regulations. 

Note: This blog post is for informational purposes only and does not constitute financial advice. Always consult with a professional for your specific circumstances. 

* The information above is shared with you by Zeal. Lyme Bay Holidays and its parent company Sykes Cottages 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. Lyme Bay Holidays and Sykes Cottages hope 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 with Zeal, you do so entirely at your own risk. Any such arrangement is between you and them. 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