What are Holiday Let Business Rates?
When deciding to rent your holiday home, it can be easy to get excited about the potential earnings and fantastic feedback. However, it is also important to consider your outgoings, including holiday let business rates.
Holiday let business rates and taxes are not dissimilar to council tax, they must be paid on most properties used for commercial use rather than residential. They are used to help pay for local services.
You will be required to pay business rates on your holiday home if it is available for short-term letting, for periods totaling at least 210 days per year. Unless it qualifies for small business relief, which is calculated on your property’s rateable value if under £12,000.
How to calculate your Holiday Let Business Rates?
Business rates are calculated by multiplying a property’s rateable value (set by the Valuation Office Agency) by the national small business multiplier; this is determined by central government and updated annually on 1 April. Your local council can provide your property’s rateable value.
There are certain holiday let business rates and tax reliefs you can benefit from, such as Small Business Rates Relief and Furnished Holiday Let Schemes. The small business relief means many smaller cottages fall under the threshold and don’t pay any business rates.
Detailed information on how rateable values are assessed for different property types is available on the government’s website: https://www.gov.uk/find-business-rates
The current benefits of a Furnished Holiday Let
- You can claim capital allowances on your property, to deduct costs such as furnishings and décor from your pre-tax profits.
- Income generated from a FHL property is classed as “relevant earnings” for pension purposes.
- You can split the profits of an FHL between yourself and your spouse flexibly for tax purposes.
- When you sell your property, you can claim certain Capital Gains Tax relief – please refer to current information on the Gov website
When it comes to expenses, your FHL property is treated similarly to that of a business. It is important to note the regulations will change from April 2025, and the government is still clarifying each point.
Expenses claimed must be against commercial use only so if you, your family or friends use your property, your expense will be partly considered as “private use”; you will need to calculate what percentage of the expense is commercial. For example, if you use the property privately for 3 months of the year, 75% of your expenses will be considered commercial.
Expenses must not be capital payments for the purchase or construction of the property, or for its fixtures (capital allowances could cover these expenses). Here are some examples of allowable expenses:
- Utility bills or refuse collection
- Interest on loans associated with the property – law will change April 2025.
- Advertising or letting agency fees
- Products bought for the property (such as cleaning products and welcome packs)
- Maintenance and cleaning costs
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