Tax Changes on the Horizon for Holiday Let Landlords
Published on February 28, 2023 by Sarah Mac
From April 2023, new eligibility rules for business rates will kick in for self-catering properties in England and Wales. Failure to meet these rules will see second homes becoming eligible for council tax, missing out on potential business rate relief.
The rules will be used in assessments from 1 April 2023, whereby the way the property was used in the 2022/23 operating year will be used to determine whether it is eligible.
As things stand, owners of second homes in England can avoid paying council tax and instead qualify for small business rates relief by declaring an intention to let the property out to holidaymakers.
However, the government is concerned that many never actually let their homes and instead leave them empty, and are therefore unfairly taking advantage of the tax break.
Second homeowners will therefore now have to pay council tax where there is no evidence available that the property is a genuine holiday let.
What are the changes?
Currently there is no requirement for second home owners to provide evidence that their property has actually been commercially let out.
However, from 1 April 2023, a property will only be assessed for business rates rather than council tax if the owner can provide evidence that:
- It will be available for letting commercially as self-catering accommodation for at least 140 days in the coming year
- During the previous year, it was available for letting commercially as self-catering accommodation for at least 140 days
- During the previous year, it was actually let commercially as self-catering accommodation for at least 70 days
The Valuation Office Agency will be responsible for deciding whether a property should be assessed for council tax or business rates under the new regime. They will look at whether the property was occupied immediately before midnight to establish whether a property was let on a certain day.
For example, if a property is let from Friday evening to Sunday morning, this means it would have been let for two days for the purposes of meeting the self-catering criteria.
Evidence such as a website or brochure used to advertise the property, letting details and receipts, will be requested.
What does ‘commercially let’ mean?
Properties that are commercially let are those rented out with the intention of making a profit. Generally, this means that the property is let at market rates and actively marketed using the likes of holiday accommodation and tourism websites and estate agents.
Any non-commercial lettings, for example when a property is let to family and friends for amounts below the market rates, will not be considered commercial lettings.
How will the rules be applied?
The new eligibility rules will be used in assessments made from 1 April 2023.
There won’t be any exceptions to the new eligibility rules, which will apply across the board to all self-catering properties across England and Wales.
New self-catering properties will automatically be liable for council tax until they meet the eligibility rules, i.e. until they reach the minimum number of days let commercially.
Valuation officers will operate a rolling programme to verify whether properties listed as commercially self-catering meet the eligibility rules. Owners will be asked to provide information at varying times during the 2023/24 operating year.
A valuation officer will ask for this information in the ‘Request for Information’ form. It is vital for owners to return this form on time, as they will be liable to a financial penalty otherwise. It is also essential that, being a legal document, it is completed accurately.
Serious consequences for including false information, including prosecution, may apply. Properties may be reassessed in certain circumstances, for example if there has been a change of circumstances or a change of use.
What support is available for second home owners?
There are various reliefs available to assist owners of genuinely commercially let properties, including the Small Business Rates Relief scheme (SBRR).
Any queries concerning business rates or council tax payments should be made to the local council.