There are currently around 85,000 self-catering holiday homes in England and Wales.
Unlike other types of non-domestic property, not all self-catering accommodation is liable for business rates. Some properties will be instead liable for Council Tax. The type of property tax paid depends on whether the property meets the latest eligibility rules, introduced in April 2023.
These look at the number of nights a property was available to let and how many nights it was actually let in the previous 12 months. The rules are different depending on whether a property is in England or Wales.
If these rules are not met, a property will become liable for paying Council Tax and given a Council Tax band. If the rules are met, a property will be liable for business rates and will be given a rateable value.
In this blog, we discuss how we calculate the rateable value of properties that are liable for business rates.
The valuation method
When we value a property, we generally look at its open market rental value. This means how much someone would be willing to pay for the property in rent for a year.
However, this way of valuing would not be suitable for self-catering holiday homes. Properties are usually owned, rather than rented on an annual basis in the same way as a shop would be.
Because of the lack of rental information, we look at the annual income the property is expected to generate if let to its full potential. This is called its fair maintainable trade.
We request details of income and expenditure from different types of self-catering properties to see what the fair maintainable trade would be.
After we work out the fair maintainable trade, we then apply a set percentage to this figure to arrive at a rateable value. This value is used by local authorities to calculate business rate bills.
Categories of self-catering properties
We use different percentages depending on the type of self-catering property being valued. We divide self-catering properties into 2 categories:
- single properties and complexes of up to 4 properties
- complexes with 5 or more properties.
Single units and complexes up to 4 properties
Single units and complexes of up to 4 properties are valued by bed space for each property.
To work out the value of each single bed space, we analyse the fair maintainable trade to understand the annual net profit from letting out that bed.
This profit is split into a fair income for the individual who operates the holiday let and a remainder. The remainder is considered to be a reasonable rent and overall rateable value for the property.
This figure is then divided by the number of single bed spaces within the property to arrive at a rateable value for each bed space.
If we have limited evidence of a property’s income and expenditure, we can compare it to a similar property type with the same number of bed spaces to work out the rateable value.
Self-catering complexes (5 properties and above)
For self-catering complexes with 5 or more properties, the rateable value is based on a percentage of fair maintainable trade. The percentage we use is based on the characteristics of the complex.
Each complex will fall into one of 3 categories:
- category A: for complexes with substantial facilities, for example swimming pools, tennis courts and games rooms. These complexes are valued at 11% of fair maintainable trade
- category B: for complexes which will have typical levels of quality and minor facilities. Most complexes fall into this category and are valued at 13.5% of fair maintainable trade
- category C: for basic quality complexes with no facilities. These complexes are valued at 16% of fair maintainable trade.
Category A properties have a lower percentage as running costs and expenditure is likely to be higher. Category C properties have a higher percentage as they do not have the costs involved with having lots of facilities.
To help decide what percentages to use, we talk to industry representatives, including the Professional Association of Self Caterers UK.
Location, quality and type of property
The location, quality and type of property also play an important part in its valuation.
Properties can be in highly sought-after areas or in less in demand locations. Prime locations tend to have higher rateable values.
High-quality properties may be modern and offer extra facilities, such as a hot tub. In contrast, basic properties might lack standard facilities such as heating.
We also consider the type of property when valuing self-catering holiday homes. All properties are placed in one of the following categories:
- flats
- lodges and chalets
- barns, stables and chapel conversions
- character houses/non-standard houses of all ages
- traditional houses and bungalows with no unique features.
We then compare properties in similar locations and of a similar quality and type to work out the fair maintainable trade of different kinds of self-catering accommodation.