Did you know that property made available for holiday lets is legally bound to be taxed under business rate rules rather than council tax?

Business Rates

If the holiday let is available to book for at least 140 days per year, the property is legally required to be taxed under business rates and not council tax. Note this is based on the days available to book and not the number of days actually booked.

Business rates are determined by the Valuation Office Agency (VOA) who will arrange a valuation based on the earning potential of the property minus costs (maintenance, cleaning, repairs etc.). Small business rate relief is available in England and Wales which can reduce the amount payable by up to 50% on a sliding scale. This is currently for lets with a rateable value of less than £5,000. Above this figure, the discount gradually reduces up to £9,999.

Also of note is the scenario where there are multiple letting units together, such as a block of apartments or collection of cottages on a farm, which can be rated together.

For more on business rates in England and Wales, the Valuation Office Agency provide a basic guide at http://www.voa.gov.uk/publications/public_fact_sheets/self-catering.pdf

In Scotland the rules are the same with business rates applicable when the property is let for 140 days or more - http://www.scotland.gov.uk/Publications/2008/01/guide

Council Tax

Council Tax is applicable on holiday lets which are made available for lets for less than 140 days in a calendar year.

Until the Local Government Act of 2003, the council tax on a second home, whether a holiday let or used privately by the owner, was set at 50% of the usual rate of residential properties in the area. Since then, new legislation has given local authorities the freedom to charge anywhere between 50% and 90% of the residential rateable amounts. This has in effect led to many local authorities setting the charge at 90%.

In England, 50 local authorities have retained the rate of 50% at the time of writing this article (March 2011) though, including Durham and Bolton, whereas around 85 has increased the rate to 90%. DirectGov has a search tool for to find second home rates across England with links to Scottish, Welsh and Northern Irish local authorities - http://local.direct.gov.uk/LDGRedirect/index.jsp?LGSL=59&LGIL=8

Towards the end of 2010, there was a motion to remove the second home discount altogether from the Liberal Democrats, providing extra income into local services. The proposal will be considered as part of a review of council powers by the Department of Communities and Local Government. As soon as any proposals are released we will post updates in the news section.

On a holiday park

Buying a lodge or holiday home on a park attracts a different charges and rules. There are many quality developments of lodges and homes now appearing across the UK as an alternative to a freehold or leasehold acquisition. Typically these properties are only allowed to be occupied for part of the year, though this is often as much as ten months avoiding any holiday letting problems. This in turn means no council tax is payable, though the site will charge an annual site fee, often more than council tax per annum, which includes maintenance to the site and access to any on-site facilities.