If you are a second homeowner with a holiday let, you have a year to ensure you won’t be caught by the closure of a tax loophole used by some to avoid council tax bills on their holiday homes.
Currently, those with second homes in England can avoid paying council tax and can access small business rates relief if they state they are planning to use their property as a holiday let.
However, until now homeowners have not had to provide any evidence that this home has in fact been rented out to holidaymakers, allowing some to gain a tax advantage, despite the property being occupied solely or primarily for private use and standing empty for much of the year.
From April 2023 new rules stipulate that holiday rentals must have been let for a minimum of 70 days in the previous year to qualify for the council tax exemption and small business rates. In addition the property must be available to let for 140 days a year.
Proof of letting
Property owners will have to provide letting receipts and details of where the property is advertised to holidaymakers, e.g. online or via brochures. Those that fail to let out their property for the required period will have to pay council tax the following year.
Business rates are paid to the local authority. Like council tax, the amount paid will depend on the ‘rateable value’ of the business property. However, as many holiday lets are effectively small-scale businesses, many will qualify for small business rate relief, which will effectively mean no charge at all.
Government figures show that around 65,000 holiday lets in England are liable for business rates, but around 97% have rateable values of up to £12,000. If the rateable value is less than £12,000 then there will be no business rates to pay. These rates are also reduced, on a sliding scale, if the rateable value is between £12,000 and £15,000.
Landlords running commercial holiday let businesses, which encourage tourism and provide jobs and local revenue across the country, will not be penalised.
As we move towards the holiday season, now is a good time to work out a plan to ensure you don’t get caught out next year.
If you would like to discuss the above with one of our experienced financial planners, please get in touch here.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.