Furnished holiday lettings are generally liable to business rates rather than council tax. This can be very beneficial, particularly where the landlord only has one business property and is eligible for 100% small business rate relief, meaning that there is nothing to pay. However, new eligibility rules are being introduced from 1 April 2023 for self-catering properties and to remain within business rates furnished holiday lets must meet the new eligibility criteria.
If the property does not pass the tests, the landlord will instead be liable for council tax.
Different rules apply in England and Wales.
The Tests – England
From 1 April 2023, a furnished holiday let in England will only be eligible to pay business rates if the property:
- is available for letting commercially for short periods totalling 140 days or more in the previous and current year; and
- is actually let commercially for 70 days or more in the previous 12 months.
The Tests – Wales
The tests applying in Wales are stricter than those applying in England. For a property in Wales to be eligible for business rates from 1 April 2023, the property must:
- be available to let commercially for short periods that total 252 days or more in the previous and current year; and
- be actually let commercially for 182 days or more in the previous 12 months.
Only commercial lets are taken into account in determining whether the tests are met. A property is let commercially if it is let with the intention of making a profit. The property would normally be advertised on sites such as Airbnb and Booking.com or by holiday cottage lettings agents and let out at market rates. Non-commercial lettings to family and friends are ignored.
Interaction with the Tax Rules
For tax purposes, to qualify as a furnished holiday letting, the property must be available for letting for 210 days in the tax year and actually let for 105 days in the tax year. Let’s exceeding 31 days and those to family and friends on non-commercial terms are not taken into account.
If a property in England qualifies as a furnished holiday let for tax purposes, it will be eligible for business rates. However, where the property is in Wales, the property will not automatically fall within business rates as the business rates tests in Wales are stricter than the tax tests.
Applying the Tests
To determine whether the property qualifies for business rates, the Valuation Office Agency will look at whether the property was occupied immediately before midnight. For example, if a holiday cottage is let out from Friday afternoon until Monday morning, the property will be treated as having been let for three days – it is occupied just before midnight on Friday, Saturday and Sunday. Although the guests remained in the property on Monday morning, Monday does not count as a day when the property was let as the guests left before midnight.