Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
A growing number of holiday homeowners letting out their properties are moving to pay business rates to avoid sharply rising council tax bills.
There were 78,000 holiday lets registered for business rates on March 31 2024, up from 63,000 in 2020, according to analysis by estate agent Hamptons. But the number of homes liable for second homes council tax — recorded at October each year — has stayed at 263,000 over the four years.
Council tax on second homes is going up in many holiday spots, where policymakers worry the demand for housing is pushing up prices and locking local people out of the market.
On top of tax rises already imposed by councils, they will be able to charge a 100 per cent premium on second or empty homes. Those planning to impose these rises include Bath and North East Somerset, East Devon and North Norfolk, all second home hotspots.
The attraction of moving to the business rates system from council tax is that often homes fall below the threshold at which any payment is due. Those claiming small business rates relief with a rateable value of less than £12,000 qualify for a 100 per cent discount.
Those with multiple properties can only claim the relief on one of them. But assuming each owner only has one property registered for business rates, some 96 per cent of holiday lets in England fall below the threshold at which they have to pay rates, Hamptons calculated.
The number of properties taking up business rates has already grown in hotspots such as Cornwall (up 32 per cent between 2020 and 2023), Northumberland (34 per cent), and Dorset (27 per cent).
But Hamptons warned councils were losing out as a result. Since October 2019, Cornwall authorities were 6 per cent down on their second home tax receipts.
“Most of the councils imposing council tax premiums will find themselves worse off,” said Aneisha Beveridge, research director at Hamptons. “Adding premiums to council tax without reform of the wider business rates system probably isn’t the answer to curtailing the number of holiday lets.”
If holiday let owners were to sell up, just 4 per cent of them think a local person would purchase it, according to a survey of 500 investors this year by holiday rental agency Sykes Cottages. Demand also remains robust: half of owners were likely to buy another holiday let in the near future, despite the government’s reforms.
However, running a home that qualifies for business rates relief is a very different proposition from keeping a second home mainly for family and friends.
Dean Lonergan, director at the Cornwall office of estate agent Jackson-Stops, says: “Somebody might have a holiday cottage and use it, say, eight to 12 weeks of the year themselves — making it available for holiday lets the rest of the time. You find these are the ones currently paying council tax, who will probably look to switch it. The complication for switching [to rates] is that it’s got to be physically let.”
There are strict criteria to qualify for business rates. Self-catered homes in England must have been available for rent for 140 days of the previous year and actually let for at least 70 days; in Wales, they must have been available for 252 days and rented for 182.
While this will require more work on the part of owners, there is an upside for the wider market, Beveridge said. “It will mean homes that were previously empty for most of the year will probably be used more intensely by visitors.”
