Consultation outcome

Business rates treatment of self-catering accommodation: summary of consultation responses and government response

Updated 14 January 2022

Ministerial foreword

From London to Cornwall and from Cumbria to the Cotswolds, the UK offers the best places in the world for tourists to visit and spend time in, whether they’re holidaying here at home or travelling from abroad.

As part of our national recovery from the pandemic, we want to back our tourism industry every step of the way.

We want to empower the sector not just to build back from COVID-19 but to build back better and play its part in creating the stronger, fairer, more prosperous economy and society we all want to see.

Since the onset of the pandemic, we’ve provided over £35 billion in grants, loans and tax breaks for the tourism, leisure and hospitality sectors. Our Tourism Recovery Plan, which we published last year, also sets out the steps we’re taking to help the sector recover quickly to pre-pandemic levels.

Along with this, we want to ensure that the council tax and business rates rules for those offering self-catered accommodation are clear, easy to follow and, above all, fair.

We know that there are concerns around the current rules which may allow some individuals to reduce their tax liability, while making little or no effort to actually let their property out.

Permanently addressing this unfairness was the guiding ambition behind our consultation on the business rates rules for self-catered accommodation. I would like to thank everyone who has taken the time to read the options we’ve proposed and share their views.

The overwhelming majority of respondents told us that the rules governing this kind of self-catered accommodation should be made fairer.

So, the government is taking action to ensure that only property that can demonstrate actual letting activity is valued for business rates, and able to access the relief available to small businesses.

This document provides further detail on how the rules will be strengthened, with the new regulations taking effect from 1 April 2023, giving the sector ample time to prepare.

Fairness restored. Small business owners protected. Councils supported to invest in our people, places and communities. That’s what these changes will achieve in practice and I look forward to working with my colleagues in government, with local authorities, and with business owners to make this new regime a success and fulfil our commitment to build back better.

The Rt Hon Michael Gove MP
Secretary of State for Levelling Up, Housing and Communities

1. Introduction

Property in England is valued by the Valuation Office Agency for council tax or non-domestic rates (‘business rates’) purposes, depending on the nature of its use. Income raised through local taxation contributes towards a range of vital public services, including police and fire services, road maintenance, planning, schools, and support for vulnerable children and adults.

Under the current legislation, owners of second homes are usually liable for council tax, including where they may carry out a degree of short-term letting. However, if a property will be available for letting commercially as self-catering accommodation (as a ‘holiday let’), for short periods totalling 140 days or more in the coming year, it will generally be valued for business rates instead^{[footnote 1]}.

Many holiday lets have a rateable value below the threshold for small business rate relief. This provides 100% relief from business rates – meaning no tax is due – on properties with a rateable value of £12,000 or less, provided the business uses only one property (though relief may still be available in certain limited circumstances). Tapered relief is available on properties with a rateable value below £15,000.

Following concerns that the current rules may enable some property owners to reduce their tax liability by declaring that a property is available to let, but making little or no realistic effort to let it out, the government published a consultation on 7 November 2018 on the business rates treatment of holiday lets.

The consultation proposed to strengthen the criteria for a holiday let to be assessed for business rates, and sought views on doing so through aligning the criteria in England with those introduced in Wales in 2010. This would mean that a property would be assessed for business rates rather than council tax only if:

• a) It will be available for letting commercially as self-catering accommodation, for short periods totalling at least 140 days in the year after the day in question
• b) During the previous year, it was available for letting commercially, as self-catering accommodation, for short periods totalling at least 140 days
• c) During the previous year, it was actually let commercially, as self-catering accommodation, for short periods totalling at least 70 days

On the 23 March 2021, the government announced that, following the consultation, it will legislate to change the criteria to account for actual days the property was rented. This document summarises the responses received to the consultation, and provides further detail on how the government will amend the criteria in light of these responses.

2. Overview of the respondents

There were a total of 106 responses to the consultation. We are grateful to everyone who took the time to respond and share their views and suggestions. All responses have been given full consideration as part of the decision-making process informing the changes announced in this document.

The table below gives a breakdown of consultation responses by respondent type.

Respondent type	Number of responses
Private company	2
Local authority representative group (including responses from National Parks representative groups )	12
Local authority councillor	1
London borough	1
Member of parliament	2
Member of the public	21
Metropolitan district	5
Community group	1
Owner of self-catering accommodation	14
Parish or town council	5
Shire county	5
Shire district	16
Interest group or voluntary organisation	15
Unitary authority	6
Total responses	106

This document provides a summary of the consultation responses received and does not attempt to capture every point made. It deals with the questions grouped by topic, rather than in strict numerical order. In light of responses received, it sets out the changes that the government is making to the business rates treatment of holiday lets.

3. Summary of responses

Question 1: Do you have any views on the current criteria?

Overview of responses

The overwhelming majority of respondents agreed that the current criteria should be strengthened. Respondents recognised that many holiday lets are under the rateable value threshold for claiming 100% small business rate relief – meaning that no tax is due. As such, concern was raised that the current criteria may allow some second home owners to reduce their tax liability by declaring that a property is available to let, but making little or no realistic effort to let it out.

Respondents also argued that the current criteria are insufficient to evidence use of a property as a self-catering business. Some respondents offered no clear opinion and a few considered the existing criteria to be sufficient.

Detailed comments

• Concern was raised that local authorities are missing out on revenue from inappropriate claims for small business rate relief (despite grant from the government to compensate for the award of the relief), and that this is placing pressure on other taxpayers.

• Some trade bodies representing the tourism industry argued that the current criteria are giving second home owners (who may let out their property on an ad-hoc basis) an unfair commercial advantage over professional businesses.

• One local authority and one trade body cited a lack of evidence that the current criteria are being abused, and therefore felt that no change was necessary. Another trade body representing landowners and rural businesses noted that the current criteria provide necessary flexibility for properties to respond to variable letting levels.

Question 2: Do you have any views on the possible criteria set out above? (addition of a 140 days availability and 70 days letting condition applying to the previous year)

Overview of responses

Just under 100 respondents offered a clear view on aligning the criteria in England with those introduced in Wales in 2010, as an approach to strengthened criteria. The majority were broadly in support of this approach, but around half felt either that the criteria should be strengthened beyond those in place in Wales, or that broader changes should be made to the local taxation of holiday lets. Three respondents argued that the proposed additional criteria would be too harsh or unnecessary.

Detailed comments

• The majority of respondents felt that it was reasonable to require evidence of actual letting for a property to be assessed for business rates rather than council tax. Some commented that the 140/70 day thresholds proposed strike a balance between strengthening the criteria, and offering flexibility for holiday let owners to respond to a fluctuating market, or for those operating in areas where demand for tourism is more seasonal.

• A few respondents of different types felt flexibility should be provided when meeting the letting condition, for individuals who may be unable to meet the letting criterion due to circumstances beyond their control, such as last minute cancellations, adverse weather conditions or economic downturn.

• The views of respondents supportive of tightening the criteria beyond those used in Wales can be broadly summarised under two themes:

  • Responses advocating higher availability and letting thresholds than in Wales;
  • Calls for more systemic changes beyond the criteria, such as making all holiday lets used at any time for domestic purposes liable for council tax, or removing small business rate relief (or offering a reduced level) for holiday lets.

Question 4: Do you have any alternative suggestions that would similarly strengthen the criteria?

Overview of responses

Respondents put forward alternative suggestions for a higher threshold for availability and letting conditions, and/or additional criteria such as planning conditions.

Detailed comments

• Some respondents suggested that a ratepayer should also be required to gain planning permission to offer a property for short-term lets, and prove that this has been obtained in order for the property to be assessed for business rates.

• Some respondents proposed the addition of a maximum continuous letting period, to help clarify the definition of ‘short-term’ let.

Question 7: Do you have any other comments on the options set out above to strengthen the criteria?

Not all respondents answered this question. Those that did took the opportunity to reiterate or expand on points made in response to other questions.

Government’s response

The government strongly supports the tourism sector and recognises the key economic, social and cultural role it plays. The government is also committed to ensuring that all property is subject to the appropriate tax and that all taxpayers are treated fairly. Having reflected carefully on the consultation responses, the government continues to consider that it is appropriate to tighten the business rates criteria for holiday lets, so that only property that is actually let out is treated as a business and assessed for business rates.

In order to determine the specifics of strengthened criteria, the government has weighed up requests for higher thresholds, and/or additional criteria such as planning conditions, against those for a simple system that prevents properties fluctuating regularly between business rates and council tax assessments, and provides for holiday lets operating in a variety of differing circumstances.

The government is also aware that the consultation period was prior to COVID-19, and recognises how hard the tourism sector has been hit by the pandemic. That is why the government has provided the tourism, leisure and hospitality sectors with over £35 billion in support since the start of the pandemic, and set out its Tourism Recovery Plan to recover tourism to pre-pandemic levels.

With this in mind, the government has decided to introduce a 140 day availability condition and 70 day letting condition in the year preceding the day of assessment for holiday lets in England to be assessed for business rates, as suggested as an option at paragraph 8 of the consultation. This will broadly bring the criteria in England in line with those introduced in Wales in 2010. The Scottish Government has also accepted the Barclay Review recommendation to introduce a similar 70 day letting condition for holiday lets to be assessed for business rates, which will apply from 1 April 2022.

Under the new rules in England, a property will be assessed for business rates rather than council tax only if the owner can provide evidence that:

• a) It will be available for letting commercially, as self-catering accommodation, for short periods totalling at least 140 days in the year after the day in question
• b) During the previous year, it was available for letting commercially, as self-catering accommodation, for short periods totalling at least 140 days
• c) During the previous year, it was actually let commercially, as self-catering accommodation, for short periods totalling at least 70 days

The government will legislate for this change in early 2022, to have effect a year after the regulations come into force in order to give ratepayers appropriate time to prepare. The new rules will therefore have effect from 1 April 2023, taking into account marketing and letting activity from 1 April 2022.

“Commercially” is defined in the legislation as being “on a commercial basis, and with a view to the realisation of profits”^{[footnote 2]}. This will usually mean the property being let at market rates and actively advertised, for example through commercial marketing sites and publications. Lettings to friends or relatives at zero or nominal rents will not be covered. The legislation also sets out that the position for a day for business rates or council tax purposes is taken as that which existed at the end of the day. This means for example that a property let out from Friday evening to Sunday morning would have been let for two days for the purposes of meeting the holiday lets criteria.

The government has decided not to introduce bespoke provisions for owners with multiple holiday lets at the same location or within very close proximity, which was considered as a possibility at paragraph 17 of the consultation document. Having reflected on consultation responses, it considers that the additional complexity this would introduce into the rules and their enforcement would outweigh the potential benefits. It also notes that owners with multiple lets at the same location may not be eligible for small business rate relief, preventing a ‘cliff-edge’ in tax liability if one of a group of lets were to fail to meet the letting threshold and be liable instead for council tax^{[footnote 3]}.

The business rates rules for holiday lets only apply to buildings (or self-contained parts of buildings) that would otherwise be assessed for council tax. As such, they will not apply to all property types that may be available for short-term lets. For example, caravans will not generally be subject to these rules as they are usually assessed for business rates under separate provisions of the Local Government Finance Act 1988 (with some exceptions, such as when they are the sole or main residence of an individual).

Some consultation respondents suggested that all holiday lets used at any time for domestic purposes should be liable for council tax, or that, where holiday lets are valued for business rates, they should not be able to access small business rate relief. The government supports short-term letting, where this is operated responsibly and in accordance with the law.

Short-term letting boosts the tourism sector by providing competitively priced accommodation for potential visitors, encourages the productive use of underused accommodation and brings visitors to an area to contribute to the local economy. The government therefore maintains that holiday lets that are able to meet the strengthened criteria should be able to access small business rate relief in the same way as any other small business.

The government understands the concern raised by some respondents that, where holiday let premises are claiming rate relief, councils may be losing out on funding. However, this is not necessarily the case. The cost to local authorities of providing small business rate relief (including that provided to holiday lets) was taken into account when setting up the business rates retention system in 2013.

This meant that, in working out how much funding authorities receive from government, the system was set up so they do not lose out as a result of the relief they provide. The government also compensates authorities through additional grants to reflect changes to the small business rates relief scheme since 2013. There is nevertheless a clear issue of fairness that the government wishes to address.

Question 5: Do you have any views on the option of backdating business rate bills and reimbursing council tax payments?

Overview of responses

The consultation proposed that a property that became newly available as a holiday let, and a property previously available as a holiday let that changes ownership, would be liable for council tax until it could satisfy any additional criteria, at which point it would become liable for business rates. It suggested that, if and when the criteria are satisfied, it would be possible to backdate the liability for business rates and have council tax paid reimbursed in respect of the relevant year.

Some respondents recognised that there may be circumstances in which backdating was appropriate, but many others drew attention to the administrative challenges and revenue instability that backdating may pose.

Detailed comments

• A few local authorities requested confirmation that any section 31 grant provided by government as compensation for the extension of the small business rate relief thresholds would also be backdated along with business rate bills.

• Some respondents highlighted the interaction with waste collection services, and proposed that if backdating business rates, commercial waste charges should also be backdated.

• Some respondents proposed that new or existing properties that become available as a holiday let should be automatically registered for business rates, but receive a backdated council tax bill at the end of the initial year if unable to satisfy the business rates criteria. Concern was raised that the requirement to pay council tax during the initial year of operation could place a financial burden on new holiday-let owners, even if later refunded.

Government response

Many respondents raised concerns about the financial and administrative challenges that may be experienced by local authorities and the Valuation Office Agency as a result of a backdating system to accommodate properties that are newly available to let. For example, some local authorities noted that it may be more challenging to collect council tax if a new holiday let owner expected that it would later be refunded, and suggested that a backdating system may cause uncertainty for budget planning.

The government also recognises that property may be newly available to let in a wide range of differing circumstances and building types, and that strengthened criteria need to strike a balance between providing flexibility for owners in different situations across England and protecting against possible abuse. With this in mind, the government will be making no special provision for properties that are newly available to let. It notes the concerns raised by some trade bodies that a requirement to pay council tax until a property has met the prior year conditions might place a financial burden on new holiday let owners.

However, it considers that the 70 and 140 day thresholds selected (in favour of the higher thresholds proposed by some consultation respondents) provide appropriate flexibility for property owners operating in a range of different circumstances, including those seeking to establish their status as a new letting business.

A property that becomes newly available as a holiday let (or that is purpose built as a holiday let) will therefore be liable for council tax for each day until it has been available for 140 days and let out for 70 days in the previous 12 months. On the day that these two criteria are met, assuming the property will continue to be available for 140 days in the coming 12 months, it will qualify for a business rates assessment.

For example, a property that is first advertised as a holiday let would be liable for council tax for the next 140 days. If it was actually let out for 70 of these days, on day 141, it would qualify for a business rates assessment (provided the owner intended to advertise it for 140 days in the coming 12 months).

Question 3: Do you have any views on how the criteria set out above could be evidenced?

Overview of responses

Respondents offered suggestions for a range of appropriate evidence sources. Although it was recognised that sufficient evidence was necessary to ensure compliance, concern was also raised about the administrative burden on the ratepayer and the body responsible for assurance.

Detailed comments

• Suggestions for appropriate evidence included proof of marketing materials such as websites, leaflets and adverts; financial accounts, bookings invoices and receipts; the requirement to register with a tourist agency; provision of insurance details; proof of business waste disposal arrangements and submission of HMRC self-assessment tax returns.

• Some respondents raised concerns about the administrative burden that may result from the assurance process required to enforce strengthened criteria.

Question 6: Are there any issues regarding the administration and enforcement of the approach outlined?

Overview of responses

Many respondents argued that strengthened criteria would require an annual assurance process. Some felt that this may be burdensome for the responsible body.

Detailed comments

• A number of respondents felt an annual review of evidence would be necessary to ensure compliance.
• Concern was raised that enforcement of the additional criteria could be costly and labour intensive, with a potential increase in complaints and appeals.
• Some respondents questioned the capacity of the Valuation Office Agency and local authorities to enforce revised criteria.

Government response

Once the new criteria are operational, the Valuation Office Agency (VOA) will be responsible for their assurance, consistent with its statutory duty to maintain accurate non-domestic rating lists as far as is reasonably practicable. As usual, billing authorities also have a statutory duty to inform the relevant valuation officer if they become aware of any information suggesting that a list requires alteration, and can do this using a billing authority report.

To remain (or be newly) assessed for business rates after the new rules come into effect on 1 April 2023, all owners of holiday lets will need to be able to prove to the satisfaction of the VOA that, in addition to their property being available for short term lets totalling at least 140 days in the coming year, it was also available for short term lets totalling at least 140 days in the previous 12 calendar months, and actually let out for 70 of these days.

Owners will need to provide evidence such as the website or brochure used to advertise, letting details and accounts, similar to that requested in this form. The government will communicate to ratepayers the exact method for collecting evidence before the new rules come into effect in 1 April 2023.

Existing owners of holiday lets that cannot meet the strengthened criteria should notify the VOA as soon as possible, so that their property can be assessed as domestic and revert accordingly to (or be given) a council tax valuation. Failure to do so could result in a large, backdated council tax bill. Owners of holiday lets that meet the strengthened criteria should be prepared to submit evidence to the VOA as part of ongoing compliance checks. It is the responsibility of the ratepayer to demonstrate to the satisfaction of the VOA that a property has met the criteria to be classed as non-domestic property.

If you are asked by the VOA to provide information regarding your property, please do so in the requested timescale. Non-return of the requested information within the required deadlines could lead to the reclassification of your property from non-domestic rates to council tax, as you will have failed to provide the evidence required for a business rates assessment.

Example for existing holiday let owners that are currently assessed for business rates

1. On the first day that the new criteria take effect (1 April 2023) consider the following 3 statements:

• Did you advertise your property for at least 140 days in the past 12 months? (eg. 1 April 2022 – 1 April 2023)
• Was your property actually let out for 70 of these days?
• Will you advertise your property for at least 140 days in the coming 12 months? (eg. 2 April 2023 – 2 April 2024)

2. If you meet all 3 criteria, no action is needed, but you should be prepared to submit evidence to the VOA if requested.

3. If you cannot meet all 3 criteria, you should notify the VOA as soon as possible, so that your property can be assessed instead for council tax.

1. Section 66(2B) of the Local Government Finance Act 1988. ↩

2. Section 66(8A) of the Local Government Finance Act 1988. ↩

3. Small business rate relief is available on a business’ main property if none of its other properties have a rateable value above £2,899, and the total rateable value of all of its properties is less than £20,000 (or £28,000 in London). ↩