The Government has recently announced several tax changes that will impact furnished holiday let owners. In this blog, Provestor’s Client Manager Chris Littlewood sets out the key things property investors need to know to retain access to business rates.
In April 2022, the Welsh Government announced an increase to the maximum level of council tax premiums for second homes, as well as new local tax rules for holiday lets. The measures are designed to address the issue of second homes and unaffordable housing facing many communities in Wales.
From April 2023, the maximum level at which local authorities can set council tax premiums on second homes and long-term empty properties will be increased from the current level of 100% to 300%.
Councils will be able to set the premium at any level up to the maximum, and they will be able to apply different premiums to second homes and long-term empty dwellings.
The criteria for self-catering accommodation, including Furnished Holiday Lets (FHLs), being liable for business rates instead of council tax will also change from April 2023, as summarised below:
|Current FHL letting threshold||New threshold from April 2023|
|Days available to let in 12-month period||140 days||252 days|
|Actual days let in 12-month period||70 days||182 days|
According to the Welsh Government, the change is intended to provide a clearer demonstration that the properties concerned are being let regularly as part of genuine holiday accommodation businesses making a substantial contribution to the local economy.
It will also allow councils to apply a council tax premium of up to 100% on homes which have been empty for longer than one year (rather than two years at present).
The government says that this is designed to encourage more empty homes into productive use, while enabling councils to raise and retain additional revenue to support local services and keep council tax down for local residents
At present, there is no change to the criteria holiday lets must meet in England to qualify for business rates: the property must be available to let for 140 days and actually let for 70 days in a 12-month period.
"As we’ve seen recently in Wales, local councils in popular destinations are tightening loopholes around second homes and the criteria holiday lets must meet to access business rates. It’s more important than ever for Furnished Holiday let owners to keep accurate records of the dates their property is available to let and actually let to retain access to business rates."Client Manager, Chris Littlewood ACCA
These tax changes are intended to stop second home owners, whose properties are empty for most of the year, from accessing preferential rates and taking up local housing stock. It is not designed to punish genuine holiday lets that benefit the local economy.
Here are 7 things you can do to reinforce that your holiday let is a business:
Availability to let. Include evidence such as:
Screenshots from the website listing or brochure used to advertise the property
Receipts from letting agents
Actual days let: Include evidence such as:
Reports from booking software or calendar screenshots
Tip: Strategies such as discounting an unpopular rental period to ensure it is let may help to keep the qualifying numbers up.
Days you and your family/close friends are using the property
Remember one of HMRC’s occupancy conditions for FHLs; the property must be rented out to the public for at least 105 days (15 weeks) for the 210 days available, not including private or discounted use by yourself, family or friends.
Achieving the letting and occupancy thresholds is vital for meeting FHL criteria and accessing business rates.
Other ways to evidence your holiday let is a business and not just a second home include:
Invest in marketing your business with a website, branding and social media presence for your holiday let.
Partner with local attractions and restaurants - perhaps secure a discount or preferential booking for your holiday let guests.
Provide a welcome hamper filled with local produce for your guests - this can benefit the local economy plus it is tax deductible.
Invest the profits back into your business, for instance by adding a hot tub to increase the rates you can charge.
Hopefully this blog has answered some of your questions about the recent tax changes announced for second homes. If you have specific holiday let tax queries, book a one-to-one consultation with Chris.
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