Upcoming changes to business rates for short-term lets and holiday rentals

9 November 2021

The government has confirmed that it's consulting on new legislation around the business rates that holiday rentals pay, to help regulate the types of businesses that can adopt this small business rates relief. Here's what your letting agency should know.

The government has confirmed plans to "legislate to require that holiday rentals meet an actual letting threshold before being assessed for business rates" in England. Any new regulations will aim to ensure that "only genuine holiday businesses can access the rate relief for small businesses". This also follows the government's commitment in June 2021 to look into the possibility of a "tourist accommodation registration scheme" in England, through the Tourism Recovery Plan.

Under the current legislation, property owners putting up their properties to rent as short term lets for 140 days of the year can be recognised as a "small business" for tax purposes. This means that they can pay business rates rather than council tax on those properties. Colliers has reported that local authorities in England and Wales are losing out on £110 million a year due to this relief.

However, in the recent debate in the House of Lords, the Minister for Building Safety and Fire, Lord Greenhalgh, says that "96% of second homes pay council tax in full, even though they may use local services only on an occasional basis". He highlights that in the sharing economy, where property owners meet the current threshold, it's "reasonable" for them to benefit from the business rates system instead of council tax.

Explore this year's entire State of the Lettings Industry Report 

The impact of short-term lets

Short term lets are a growing segment of the hospitality and rental sectors. While giving tenants more flexibility in the short term and often providing them with a cheaper alternative to traditional holiday accommodation, concerns include their impact on local housing markets - where an influx of investors of holiday lets may mean fewer long term rentals available - and compliance with tax and health and safety regulations.

Lord Greenhalgh shared that the impact of any legislation introduced would be difficult to define, as "in some areas where tourism is incredibly important it is a great boost to the economy, and in others it can result in the hollowing out of a particular area".

Currently, Northern Ireland regulates short-term lets, but it's the only nation in the United Kingdom to do so. Scotland is in the process of introducing a licensing scheme for short-term lets, to create "control areas" which will "help manage high concentrations of secondary letting". Under the proposals, Scottish councils will have until 2022 to set up the scheme in their area and each short-term let will have to be licensed by April 2024.

The government response to the consultation assessing business rates for short-term lets are expected "shortly".

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