Concept for furnished holiday let (FHL)

With 2020 and 2021 having seen a spike in staycations and a boom in the property market for second homes and acquiring furnished holiday lets (FHL), we are now seeing an increase in property owners looking to sell their second homes due to the new rules being implemented in April 2023.

Current law

Currently, owners of second homes in England have had the ability to avoid paying council tax and have been able to access small business rates relief by declaring only an intention to let the property out to holidaymakers, without having to prove this has actually been the case.

There have been growing concerns by the government that many of these property owners never actually let their homes and leave them empty. As a result these property owners are benefiting from the tax break with some having also received the government grants being given during Covid despite no loss actually having to be proved.

New law – how will this impact furnished holiday lets?

As part of their levelling up programme, the government are closing the loophole in the Levelling Up and Regeneration Bill (the Bill). The aim is to ensure that FHLs are run as genuine businesses and as such new rules will apply. The Bill recognises that high levels of second home ownership can have a detrimental effect in some areas and communities and will introduce a discretionary council tax premium for second homes that will not meet the FHL criteria for one year (currently two years). Second home property owners are therefore evaluating whether it is it worth holding onto their FHL or even investing in one and how they will be affected.

From April 2023 second home owners claiming FHL will need to demonstrate a genuine intention to let their property as a holiday let business. The property will not be permitted to be left empty, as per the Bill, and as such it must be available to the general public as a holiday let for 140 days per year.

The new rules mean that in order to qualify for business rates, the Valuations Office Agency will require the property must be let for a minimum of 70 days per year and the property owner will be required to provide evidence of their intention to let such as a website or brochure. Those property owners who do not achieve the 70 day minimum letting period will not qualify for business rates. These property owners will be liable for council tax instead, set at the discretionary level by the local authority. The intention is to target property owners who leave properties empty while claiming to let them as FHLs and to support genuine FHLs and the communities where they are situated.

To sum up

In short, from 1 April 2023, a property will only be assessed for business rates rather than council tax if the owner can provide evidence that:

  • the property will be available for letting commercially, as self-catering accommodation, for short periods totalling at least 140 days in the coming year
  • during the previous year, it was available for letting commercially, as self-catering accommodation, for short periods totalling at least 140 days,
  • during the previous year, it was actually let commercially, as self-catering accommodation, for short periods totalling at least 70 days

With this new found clear distinction between a second home and a FHL there are further consequences for these owners who are now required to pay council tax. South Hams has just seen a unanimous vote to double council tax for second home owners and other councils are set to follow suit.

So is a buying a second home really worth it anymore? Well that depends on your circumstances and for what your purpose and desire is to own a second home. It can be argued and was successfully argued by a South Hams Councillor, that the increase in value of the majority of second homes far outweighs the increase in council tax which ensures the areas in which the second homes are situated maintain the services relied upon. Of course, for some it is not just the increase in property value, it can also represent the flexibility of having a haven, a home away from home that far outweighs any additional cost.

So what is the next step for you?

Well, taking the time to speak with your accountant will enable you to work out whether you qualify or intend to qualify as a FHL or as a second home. This will then enable you to understand your tax liability moving forward and to make an informed decision on what will work best for you.