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Furnished holiday let council tax limit imposed
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FHL: Gove closes business rates loophole

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The rules that allow some landlords to escape both business rates and council tax on their furnished holiday let (FHL) properties will alter from April 2023, as John Endacott explains. 

21st Jan 2022
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The FHL tax changes announced on 14 January by Michael Gove MP only relate to the rules applicable in England. They follow a consultation document in November 2018 and an announcement in the March 2021 Budget.

There are differences between the rating rules for holiday let properties in the different countries of the UK and these changes will broadly bring the criteria in England into line with Wales, while Scotland is making similar changes from April 2022.

Government made loophole

The “tax loophole” described in Gove’s announcement is one entirely of the government’s own making. It arises from deficiencies in the rules on business rates and from previous government attempts to ameliorate some of the business rates problems caused by introducing small business rates relief (SBRR).

Furnished holiday lets are commercial lets and so are subject to business rates, instead of council tax, but they have nil business rates tax liability because of SBRR. Until George Osborne dramatically expanded SBRR, the council tax due on a holiday let property (classified as domestic premises) was lower than if it was assessed to business rates (classified as business premises). The incentive was therefore always to avoid an assessment to business rates.

Change from April 2023

It is very reasonable for the government to tighten up these rules. What is surprising is that it took so long to take action. Wider business rates reform would have been a better solution, and perhaps the reason for the delay in targeting this “loophole” is because the Department for Levelling Up had hoped that Rishi Sunak was going to do that in his last Budget.

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.

Must be commercial

There is already a requirement that holiday lettings must be commercial to pay business rates and these changes seem designed to make enforcement easier and to be more objective. By dealing with matters retrospectively, a more factual approach is possible.

For a day of letting to count for business rates or council tax purposes, it is the position taken at the end of the day, so a property let out from Friday evening to Sunday morning would have been let for two days.

New units

There are no special rules for those with multiple units on one location and the rules will only apply to buildings (or self-contained parts of buildings) that would otherwise be assessed for council tax. So, caravans, shepherds huts and similar units will not generally be subject to these rules as they are assessed for business rates separately.

Most importantly for accountants and tax advisers, there are no special rules being introduced for newly available holiday lets (or that are purpose built as holiday lets). These will be liable for council tax for each day until the property has been available for 140 days and let out for 70 days. On the day that these two criteria are met it will qualify for a business rates assessment.

The Government’s consultation response gives the following example on this: 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).

Conclusion

There is a tax increase for newly let properties and this is something that accountants and tax advisers need to be aware of in advising furnished holiday let start-ups and in preparing accounts for newly let properties.

 

Replies (13)

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By SteveHa
21st Jan 2022 19:26

I assume that it's safe to assume that:

The rules don't apply to England
There are no differences in rating rules
There is no tax loophole
That it won't be available for commercial letting.

Y'know, because Government lies about everything

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By Grovely
24th Jan 2022 10:39

What is a bit surprising is that the Business Rates 140/70 day rule hasn't been brought inline with the current HMRC FHL regulations 210/105 day rule !!

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By tedbuck
24th Jan 2022 10:45

OOh - a bit harsh that - the don't lie about everything - surely only pre, during and post parties. Perhaps you mean that HMG is just one big party with no-one knowing what they are doing. Sounds possible - but Gove is an ex journo - and they are always truthful - aren't they?

Oh for the days when politicians were retired businessmen - but then looking at Carillion, etc. etc. there must be no hope at all.

Back to the tea pot I suppose!

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By franclark
24th Jan 2022 11:02

This is a good start, but I am off the opinion that SBRR should NOT be available for what is, essentially, an investment for the majority of owners.

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By Helen Thornley
24th Jan 2022 14:27

Could not agree more!

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By franclark
24th Jan 2022 14:55

I have been emailing my local MP about this - along with raising the issue of all FHLs registered for business rates all receiving £28,000 of local authority grants. I have never come across a more inappropriate use of public funding.

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By dwgw
24th Jan 2022 16:11

It can't be assumed that FHLs are primarily investments. Many owners have capital but relatively low incomes and FHL profits are a useful supplement.

For a lot of owners, operating an FHL is a part time job - and not an especially well paid one given the many hours required to liaise with guests, cleaners, letting agents, utility providers, local authorities, local contractors for repairs and maintenance, insurers, HMRC and more. And that's before factoring in the many hours that can be spent if owners undertake DIY repairs and improvements. It can be a lot of work for a rate that would be below minimum wage.

Furthermore, FHLs registered for business rates have to pay separately for services, such as waste collection, that would be provided if council tax were payable.

I would add that it's simply untrue to say that all FHLs registered for business rates received £28,000 of local authority grants. But FHLs suffered dramatic falls in revenue because of Covid, just like other businesses. Why should they be any less entitled to receive support?

I would agree that the whole system of local authority finance needs to be reformed, if there's ever a government with the time, energy and conviction to undertake it. But the witch hunt against FHL owners is unedifying and, in most cases, unwarranted. And don't be surprised to find any tax increases passed on as increased holiday rental prices.

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By franclark
24th Jan 2022 17:00

Perhaps it is a different experience in different parts of the country. I live in the Lake District national park. The vast majority of holiday lets here are managed by agents and so the owners do not to anything at all for their income. With the increase in holiday makers staying in the UK the holiday lets had a bumper summer in both 2020 and 2021. I have been preparing holiday let accounts for year ended 31st March 2020 and, without exception, they are all showing profits in the region of £20k higher than their normal year - an increase in profit in line with the grants received in the tax year. I know in Scotland the grants were only available if the owner could demonstrate that more than 50% of their income came from the holiday let. Just a simple refining of the criteria along those lines would have been a good call in my opinion.

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By rfandaltd
24th Jan 2022 20:05

Off topic slightly. Also live in the Lake District. Yes FHL owners did all get £20kish grant for no good reason ultimately paid for by Cumbria residents getting nothing in return because they are not part of the FHL scam. Entreprenuers relief and other tax breaks on FHLs should be stopped immediately. Most Cumbria FHL owners do not live in the Lakes and take their money elsewhere. Must be the same situation everywhere blighted by FHLs because of ridiculously over generous tax breaks. Some tourism yes, but FHLs and over tourism is killing the Lakes and other ultra dense FHL regions where trades and other workers cannot afford to live so regions dying and cannot get enough normal workers and trades for the needs of normal 365 days a year residents. The nonsense from county council and tourism boards about the 'benefits' to economy from tourism is largely vested interest garbage and because they cannot be bothered to do what they are paid to do i.e. create proper well paid jobs and opportunities for local economy. Too easy to suckle off the tourism cash cow.
Sub £12k business rate with exemption so £nil cost to FHL owners is the least of factors wrong with FHL tax treatment. Paying for commercial waste collection is a minor cost. Most FHL blighted regions' non FHL owning residents hate them. Hope this is the start of a sustained attack and dismantling of out of control FHL income and capital realisation tax breaks and sees a 50%+ dimishing of FHLs country wide in the next 5 years. FHLs as an investment asset/source of income are a massive target for taxation gain for any government with an ounce of common semse. Of course if those profiteering from FHLs are the same individuals as those in power they will be unwilling to kill their own golden goose. Anti FHL rant over.

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By dwgw
24th Jan 2022 21:00

As I said, the witch hunt is unedifying.

There's no reason why local residents, tourists and the services that sustain them can't thrive with some give and take on both sides and sensible local government (as opposed to the punitive and vindictive approach you appear to favour).

How exactly do you expect local authorities to provide "proper well paid jobs"? Do share, I'm sure there are councils all over the country that would like to tap into that.

Not sure why you attack tourism as though it wasn't a "proper" economic sector. Take away half the holiday accommodation and you'll lose most of the businesses dependent on tourism. Perhaps you think places like the Lake District can return to some imagined idyll of a century ago. Then again, you evidently have a vested interest yourself.

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By rfandaltd
24th Jan 2022 23:29

Yes, I do and so do many others hate the explosion of FHLs due to the ridiculous tax breaks for them. Nothing wrong with some tourism. Sustainable levels of tourism should be encouraged and yes if you want to visit the lakes, or choose whatever blighted region you want - Cornwall, Wales, Devon stay in hotels and guest houses that provide more employment than just for casual FHL cleaners and FHL agent booking staff.
For starters if we are talking generally about what local government should, but doesn't do as far as generating the conditions for proper, well paid, long term jobs instead of low /minimum wage paid, hospitality work predominantly relying on overseas workers to sustain the industry (which policy they are suffering severe shortages for now) because locals can't afford to live in Cumbria on hospitality wages because FHLs have pushed house prices many multiples above what they and even reasonably well paid workers can afford so they leave the area because they have to or live a subsistence life, then instead of CCC wasting loads of money pointlessly several years ago on a broadband intitiave called Connecting Cumbria that was a blatent promotion vehicle exercise with BT and Openreach among others to show something was being done to address the appalling broadband and mobile provision for large numbers of the Cumbrian population the money could have been spent with an initiative called B4RN, broadband for the rural north. They do community broadband for £30 a month. Its 1 gig fibre to fibre and allows high tech, bandwidth intensive business to work from home or towns, villages, business parks. Just what's required after the post pandemic home-working shift. It's among the best in the world. For those communities fortunate enough to have it installed there is something locally here known as the B4RN effect. Because large files etc can be easily and instantly sent / received the areas that have B4RN have attracted home based / small businesses specialising in such as online retail, design, consultancy etc that have growth opportunity and pay decent wages that were not possible with old or current major broadband players more interested in selling subscribers their sport and entertainment packages. I have nothing to do with B4RN, but was told by someone with personal experience that it is so good when BT/Openreach knew an area was serious about it, they would miraculously get BT's expensive and nowhere near as good broadband after years of getting completely useless copper with 25years ago dial up speeds. Desperate residents would sign up to a substandard, but better than the existing useless service thereby taking customers out of the market. The £20,000 plus dished out by local government with no control or accountability to just about every FHL owner with a property in Cumbria would have gone a long way to, if not actually connecting the whole of Cumbria to 1 gig fibre to fibre. I know FHL owners couldn't believe they were getting £20K they didn't need, but still grabbed it with both hands. That's why the other correspondent and no doubt just every other accountant doing accounts for FHL owners with properties in Cumbria are showing a one off £20k increase in 2021 profits. That's my and other Cumbrian resident's money being spent on trinkets, cars, holidays or new personal kitchens and extensions by out of Cumbria FHL owners living in Manchester, Birmingham, London etc- take your pick.
Covid was a cash grab for many people who didn't need it, not just FHL owners. Business support was an ill thought out fiasco. We could go on indefinitely about national or local goverment incompetence and waste at our expense, HS2, PPE contracts to chums scams etc., etc and what our money should or shouldn't be spent/wasted on. How about MTD?
The fact is FHLs are now out of control in many parts of the country and highly detrimental to the permanent community because of their overly generous tax status and its about time they were culled as a lazy investment by punative tax. Just because local government in Cumbria, Cornwall etc are addicted to tourism because its a quick addictive fix doesn't mean its healthy or desirable long term.

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By Mr J Andrews
24th Jan 2022 11:32

Good article, John. The only item I would disagree with is the surprise that it took so long to take remedial action. Did you really expect a quick fix to a self inflicted Govt. loophole ? A cynic would say it's allowing good time to get one's act together.
Interesting too the dramatic expansion of SBRR by a certain George Osborne. The same Chancellor Osborne who became embroiled in a cash row after receiving £335K from his family wallpaper firm - even though it hadn' t paid tax for 7 years. The same Osborne who slammed Rishi Sunak's corporation tax hike.{ I can't think why }. The same Osborne whose whim about ''Making Tax Digital'' is leading the HMRC Department into its biggest disaster to date.

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By Ajtms
24th Jan 2022 11:48

Who is going to make sure that the days are accurately counted. This equally applies to the income tax reporting too where I suspect some round up by a few days to make sure they qualify

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