Non-Domestic Rates for Self-Catering Properties in Wales

Non-domestic rates, often known as business rates, are a tax on non-domestic property which contribute to the funding of local services. Any property that is used for commercial purposes is likely to be liable to pay non-domestic rates, although this depends on the exact nature of its use. The system applies to most forms of non-domestic premises, with some exemptions (e.g. for agricultural land) and relief schemes (e.g. for small businesses and charitable organisations) being applied.

Domestic properties are subject to council tax. A specific definition is required to classify self-catering accommodation for local taxation purposes, as the same properties could potentially be used either for this purpose or as domestic dwellings. This is not necessary for most other types of non-domestic property, where the distinction is clear. Together, non-domestic rates and council tax make a substantial contribution to the funding of local public services.

The Valuation Office Agency (VOA) is an Executive Agency of HM Revenue and Customs (HMRC). It has a statutory function to assess all business and non domestic properties in Wales and England to determine their rateable values and compile these in rating lists so non-domestic rates can be charged by relevant local authorities. The VOA is also responsible for the compilation and maintenance of the lists of domestic properties for council tax purposes. Both the VOA and local councils have a role in ensuring that the information used for calculating liability for non-domestic rates and council tax is accurate and up-to-date so that owners and occupants are charged the correct amount of local tax. 

The rateable value is a key factor in the calculation of non-domestic rates liability, and is a professional assessment of the annual rent a property would fetch at a set valuation date.  The other key component is the multiplier which is set on an annual basis by the Welsh Government, usually in line with inflation.

Usually every five years, the VOA carries out a revaluation of all rateable values in England and Wales to ensure that they reflect changes in the property market. The current valuation came into effect on 1 April 2023 and all properties have their rateable value assessed as at the valuation date of 1 April 2021.  

Rateable values are a key factor in the calculation of non-domestic rates but they are not the rates bill. Local authorities are responsible for calculating most rates bills and for collecting rates. The rateable value which is set by the VOA is used to work out how much a ratepayer has to pay. The local authority applies a factor called the multiplier, set annually by the Welsh Government, to the rateable value to give the non-domestic rates liability. Any reliefs that may be available are then deducted.

When the VOA assesses the rateable value of properties such as shops, offices or industrial premises, there is plenty of rental evidence available to make appropriate comparisons. With self-catering property, assessments are still carried out in this way if possible. Gross receipts also have to be taken into consideration as a guide to the potential income the property can generate. This provides a sound basis to determine how much an operator would pay in rent for the property. This method is known as the ‘receipts and expenditure’ method of valuation.

For certain self-catering properties, such as holiday cottages or apartments, annual rental evidence may not always be available. In the absence of such evidence an analysis using the price per bed space of each individual property is applied, whilst also taking into account the property’s type, size and location, to determine its rateable value. 

The price per single bed space is calculated by looking at the profitability levels of a range of similar self-catering properties. The VOA looks at the total income (excluding VAT) that a typical property generates and then deducts the associated costs such as: 

• Maintenance for the property and garden 
• Water rates 
• TV licences 
• Depreciation of fixtures. 

The calculation does not include the cost of any loan or mortgage used to buy the property. This valuation methodology was used by the VOA for the 2023 valuation.

If you have reason to believe that the rateable value that has been allocated to your property is incorrect, you should contact the VOA. You will be able to check of the information about your property held by the VOA and used to determine a rateable value. If you still feel that your rateable value is incorrect, you may challenge it by making a proposal to the VOA to alter the list in which the rateable value is specified. 

A proposal may be made in respect of a number of matters, including in relation to the rateable value and if the date on which a previous alteration of the list has come into force is wrong. A proposal cannot be made if a proposal in respect of the same property, on the same grounds and arising from the same event has already been made during the ‘life’ of the list.

If an agreement cannot be reached with the VOA or you are not satisfied with the decision following your challenge, you may refer the matter, free of charge, as an appeal to the independent Valuation Tribunal for Wales (VTW). The VTW can be contacted through its website.

A property is domestic, and therefore subject to council tax, if it is used wholly for the purpose of living accommodation. In Wales, property used as self-catering accommodation is non-domestic, and therefore liable for non-domestic rates, for any day when the VOA is satisfied that:

• it will be available for letting commercially as self-catering accommodation for short periods totalling 252 days or more in the following 12-month period;
• the ratepayer’s interest in the property enables them to let it for such periods;
• in the 12 months prior to the day being considered it has been available for letting commercially as self-catering accommodation for short periods totalling 252 days or more; and 
• the short periods it has actually been commercially let for is a total of at least 182 days during that period.

Ratepayers must continue to satisfy the non-domestic rates criteria for each property, for each 12-month period. Otherwise, unless the property falls within any other category of non-domestic property, the property is likely to be considered ‘domestic’ and would be subject to an assessment of liability for council tax.

Since 1 April 2016 in Wales, businesses consisting of several self-catering properties at the same location, or within very close proximity, have had the option to average the number of days actually let of the properties to meet the relevant criterion, where they are let by the same or connected businesses. 

It is the responsibility of the VOA to maintain the non-domestic rating lists. Any change in circumstances, including failing to meet the criteria, should be reflected in the lists. Once the VOA has assessed a property and has reached its determination, it is then responsible for notifying the relevant local authority to enable the appropriate charge to be raised.

To assist you in verifying whether you meet the criteria, a checklist with further information has been produced. This can be found in Annex 1.

The criteria for number of days available and actually let increased to their current levels from 1 April 2023. The purpose of the changes is to help ensure property owners are making a fair contribution to local communities. Self-catering operators whose properties meet the thresholds will make a contribution through the higher levels of economic activity they support. Operators whose properties fall below the thresholds will make a contribution through council tax, in the same way as owners who did not meet the previous thresholds.
  
The criteria set out above are found in section 66(2BB) of the Local Government Finance Act 1988 (‘the 1988 Act’). The criteria were inserted by: 

• the Non-Domestic Rating (Definition of Domestic Property) (Wales) Order 2010 (‘the 2010 Order’), which can be found at legislation.gov; and
• the Non-Domestic Rating (Definition of Domestic Property) (Wales) Order 2016 (‘the 2016 Order’), which can be found at legislation.gov;

and amended by the Non-Domestic Rating (Amendment of Definition of Domestic Property) (Wales) Order 2022, which can be found at legislation.gov.

Answers to frequently asked questions about the changes can be found in Annex 2.

To fall within the definition of non-domestic property by virtue of section 66(2BB) of the 1988 Act, properties must be let commercially. Section 66(8A) of the 1988 Act defines ‘commercially’ for the purposes of section 66 as ‘on a commercial basis, and with a view to the realisation of profits’. 

To fall within that definition will usually mean the property being let at market rates and actively advertised; for example, using holiday cottage websites, estate agents, tourist boards, Visit Wales webpages. On the other hand, lettings to friends or relatives at zero or nominal rents are not likely to be considered commercial and should not be taken into account when applying the criteria in section 66(2BB) of the 1988 Act to the property.

It is for the ratepayer to demonstrate to the satisfaction of the VOA that the property has met the necessary criteria to be classed as non-domestic property. Consequently, a property used wholly for the purposes of living accommodation is considered domestic and liable for council tax until such time as the ratepayer provides sufficient evidence to the VOA that a particular property is being commercially let and in accordance with the requirements set out in section 66(2BB) of the 1988 Act. Offering the property at excessively high rents may indicate that the operator is not seriously making the property available commercially.

In order to decide whether a property is liable for non-domestic rates or for council tax for any particular day, the law requires the Valuation Officer to look at the relevant circumstances at the end of each day. Any letting that ends before midnight (i.e. immediately before the day ends) would not qualify towards the total days of actual lettings which is one of the tests for non-domestic assessment. This means, for example, that where a property is let out from Friday afternoon to Sunday morning only Friday and Saturday would count as qualifying days of being actually let when considering this test. This is because the whole of Sunday has to be considered on the circumstances immediately before midnight. Therefore, to ensure clarity the Valuation Office Agency form asks operators of self-catering holiday lets to declare the number of nights their property was made available and let out for specified time periods.

The VOA issues forms called ‘Requests for information’. One of them – VO6048 – has been designed specifically for self-catering units and holiday cottages. The information provided on this form is used to help ensure that the assessment of rateable values is correct. 

The form asks a variety of questions about the way a ratepayer manages the letting of the property. The answers provided are intended to ensure that the VOA is able to take into account not only gross receipts but differences in tariffs, marketing, levels of service, or quality of furnishings and provision of other non-rateable items when assessing the rateable value of the property.

The form determines:

• the potential receipts from the property, if it is let as a business for self catering purposes; 
• the expenses that are reasonably likely to be incurred in achieving those lettings; and 
• the balance between receipts and expenses. The return the proprietor would expect for running the business and the amount available to pay rent and/or expenses for the property is considered.

You may be asked to, or wish to, consider providing supplementary evidence to support the data supplied on the form, for example in the form of financial accounts for your business, your marketing of the property, or evidence of lettings such as a guest book or calendar bookings.

If you are in any doubt about what information is required by the VOA, you should contact your local office, either through the website or by telephone on 03000 505505.

If you receive a request for information from the VOA, it is important you return the form within 56 days from the day you receive it. If you do not return the form within 56 days, you will be liable to a penalty of £100. Failure to pay the £100 penalty within 21 days will result in a further £100 penalty with a subsequent £20 penalty for each day the original penalty remains unpaid up to a maximum of £500 or the rateable value of the property, whichever is the greatest. These penalties are set out in paragraph 5A of Schedule 9 to the 1988 Act as outlined at legislation.gov.

It is also important to note that the non-return of requested information within the required deadlines could also lead to the reclassification of your property from non-domestic to domestic for local tax purposes as you will have failed to provide evidence of having met the criteria. This means the property will be assessed for council tax from the date it is deemed to have been a domestic dwelling and could result in you receiving a backdated council tax bill.

There are also consequences of providing false information. If a ratepayer makes a statement which they know to be false in a material particular or recklessly makes a statement which is false in a material particular, they are guilty of an offence and are liable to imprisonment for a term not exceeding three months or to a fine not exceeding £1,000, or both. The supply of false statements to the VOA could lead to prosecution. Offences under the Fraud Act 2006 (fraud by false representation and fraud by failing to disclose information) may also be relevant in certain circumstances. A person guilty of an offence of fraud under section 1 of the Fraud Act 2006 is liable to imprisonment of up to ten years or to a fine, or both.

If you let the property on a long-term basis (normally regarded by the VOA as 28 days or more) so that it becomes, for example, someone’s sole or main residence, then it will no longer be liable for a rating assessment because it has become domestic property. If it is assessed for rating purposes, the entry will be deleted from the rating list and it will be ‘banded’ for council tax from the date when it became a domestic dwelling. Where a dwelling is let as someone’s sole or main residence, the tenant becomes liable for the council tax payable for the duration of their tenancy.

No, if the property was available for letting for 252 days or more, but was only let for 181 days or fewer, then the property is domestic and a council tax band will be applicable for the property and the ratepayer will become liable for council tax. 

The only exception to this is where a ratepayer lets a number of self-catering properties situated at the same location or within very close proximity to each other as part of the same or connected businesses. In such circumstances, the ratepayer has the option to average the number of lettings days across their properties to meet the 182-day criterion for the business as a whole, but the commerciality criteria must still be met in respect of every property.
 

A new or existing property that becomes available for letting as a self-catering property will initially be allocated a council tax band. To be classed as non domestic under section 66(2BB) of the 1988 Act, a property must first satisfy the criteria set out in that provision. There will be a date at which the property has been commercially available for 252 days, and a date on which it has been let for 182 days in the previous 12 months. Providing it will continue to be commercially available for 252 days in the following 12 months, the start date will be from the later of these two dates. This is called the ‘effective date’. If these criteria are not met, the property will remain banded in the council tax list.

In such cases, the property would normally be assessed as domestic and listed for council tax. This may be for a number of reasons, including:

• a property is sold and the new owner intends to use the property as a domestic dwelling;
• a property is used for private occupation;
• the property has not been made available for short-term lets for at least 252 days within the past year;
• the property is not to be available for short-term lets totalling at least 252 days during the following year;
• the property has not been actually let for 182 days within the past year;
• the business is closed.

In the scenario where a property is sold as a going concern, provided that the property in the 12 months prior to sale and the 12 months following sale satisfied the relevant conditions, the property would continue to be treated as non-domestic and therefore subject to non-domestic rates.

If a property owner is aware there has been a change of circumstances such as those listed above and wants timely clarity with respect to their resulting council tax liability, they may notify the VOA of this change rather than waiting for their next reassessment. Failure to do so could result in a large backdated council tax bill. 

Local authorities have the discretion to apply council tax discounts of up to 50% on second homes, but also have the discretion to remove the discount, i.e. to charge full council tax. Your local authority will be able to provide advice on what its policy is regarding council tax on second homes.

The Housing (Wales) Act 2014 gave local authorities in Wales discretionary powers to charge a council tax premium of up to 100% of the standard rate of council tax on second homes and long-term empty properties in their area. Local authorities have been able to charge the premium in their areas since 1 April 2017. As these powers are discretionary, local authorities will consider their local needs and circumstances before deciding whether or not to charge the premium. When charging a premium on second homes for the first time, the authority must make its determination at least one year before the beginning of the financial year to which it relates.  From 1 April 2023, the maximum council tax premium that local authorities are able to charge on second homes and long-term empty homes is 300% of the standard rate. It is for individual authorities to decide whether to apply a premium and the level at which to apply it, taking account of local circumstances and priorities.

The Council Tax (Exceptions to Higher Amounts) (Wales) Regulations 2015 (as amended) provide for several classes of exception from a council tax premium.

These include: 

(a)    properties restricted by a planning condition preventing occupation for a continuous period of at least 28 days in any one‑year period;

(b)    properties restricted by a planning condition specifying that the dwelling may be used as a holiday let only;

(c)    properties restricted by a planning condition preventing occupancy as a person’s sole or main residence.

If your property is unavailable to let for 252 days or not actually let for 182 days due to adverse or unforeseen circumstances, such as flooding, which has resulted in damage to the building, this could result in your property being classed as domestic and therefore subject to an assessment for council tax. 

A property classed as a domestic property would be subject to all the exemptions and discounts available in relation to council tax. For example, article 3 of the Council Tax (Exempt Dwellings) Order 1992 provides for circumstances where a dwelling is to be exempt from council tax. Class A provides that a dwelling that is vacant, substantially unfurnished and requires or is undergoing major repair work or structural alteration is exempt for a period of 12 months. Class C provides an exemption for properties which have been empty for a continuous period of less than six months and are substantially unfurnished. 

Local authorities also have discretionary powers under section 13A(1)(c) of the Local Government Finance Act 1992 to reduce council tax bills for properties by any amount (including reducing a bill to zero). You should contact your local authority if you wish to ask about this. They will be able to advise if you are eligible for a council tax exemption, discount or discretionary reduction.

If your property comes back into use as a self-catering let and you can provide evidence to support 252 days available to let and 182 days of actual lettings in the previous 12 months, you can apply to the VOA to be reassessed for non-domestic rating purposes.  

The planning and local taxation regimes operate independently of each other and therefore use differing criteria so it is possible to be listed for council tax as a domestic property but to be classed as a self-catering property for planning purposes. Therefore, it is important for you to seek to meet the 182-day and 252-day criteria if you wish to be listed for non-domestic rates. 

There are a number of reliefs available to assist businesses, including the Small Business Rates Relief (SBRR) scheme. From 1 April 2018, when the Welsh Government made its SBRR scheme permanent, we introduced a multiple occupation restriction. This limits the number of properties eligible for SBRR to two properties per business in each local authority. Full details of this scheme and other types of relief available can be found on Business Wales webpages.

Rates reliefs only apply to properties which are classed as non-domestic so such schemes would not apply if your property reverts to being classed as a domestic dwelling because the necessary criteria are no longer met. 

Ratepayers may also in certain circumstances ask for their rates bills to be split over 12 months rather than the normal 10 months. This is also available for properties which have been assessed as liable for council tax. Further information can be obtained from your local authority.

Local authorities also have discretionary powers to grant discounts and will be able to advise on whether and how you can apply for such a discount. You should contact your local authority for further details. These powers are granted under Section 47 of the 1988 Act.

In terms of assistance in promoting and marketing your property, Visit Wales offers support to owners of self-catering properties by offering a booking service and marketing tool via the Visit Wales webpages. 

More information and frequently asked questions can be found on the Visit Wales website.  

Checklist of the criteria that must be met for a property to be classed as non-domestic

Your property must satisfy the conditions in the following order if a letting is to qualify to be assessed for non-domestic rates. Please note that to be considered for the purposes of conditions (2) and (3), the relevant letting days must satisfy the first condition.

1)    The commerciality condition

In the first instance, the property must be let on a commercial basis with a view to making a profit. Any non-commercial lettings, for example lettings to family and friends for nominal amounts, would not count towards commercial lettings. 

2)    The availability criteria

The property must have been available for commercial letting in the 12 months prior to assessment for short periods totalling 252 days or more.

In addition, the ratepayer must intend for the property to be available for letting commercially for short periods totalling 252 days or more in the following 12 month period.

3)    The letting criterion

In the 12-month period prior to assessment, the property must have been let commercially for at least 182 days.

Averaging 

From 1 April 2016, if you have more than one property and they are at the same location or within very close proximity of each other for the same or connected businesses, e.g. a farm with a number of outbuildings converted for self-catering accommodation use, then the ‘averaging’ method may provide some assistance if you have a property which meets the letting criterion in some years but not others. An example is given below. 

Worked example – averaging

Using the averaging method allows all four properties located within close proximity of each other to meet the letting criterion. Without averaging, Property 4 would not meet the criterion in that year and would be classed as domestic. Please note that even with the averaging option, the commerciality condition must be met. For example, if a property has only been let for ten days, this might meet the average requirement but not be considered as a commercial letting.

What is changing?

Under the new letting criteria, for a self-catering property to be listed for non-domestic rates, it will need to be available for let for at least 252 days (36 weeks) in a 12-month period, and actually let for at least 182 days (26 weeks). The amended criteria are being used by the VOA in property assessments from 1 April 2023 onwards.

When is it changing?

The new criteria are being applied to assessments undertaken by the VOA from 1 April 2023 onwards. The VOA’s assessment is based on letting records for the 12 months prior to the date of assessment (and the subsequent 12 months in the case of intended availability for let). This means that an assessment on a given date in 2023 will consider evidence from the equivalent date in 2022 onwards.

When and how will compliance with the new criteria be assessed?

The VOA will assess whether individual properties comply with the new criteria. The assessment process is an established one. It is not being introduced as a result of the criteria changes. The only change is to the number of days the VOA takes into account in making its assessment, after 1 April 2023.

The VOA conducts a rolling programme to check that properties listed as self-catering properties on the non-domestic rating list meet the criteria in place at the time of assessment. The VOA’s target is to check the status of each self-catering property at least once every two years. This would mean that a property assessed on the criteria in place prior to 1 April 2023 might continue to be listed on that basis for up to two years, but the reassessment could take place at any point. A property found not to be meeting the criteria following reassessment may be moved to the council tax list at any time, including in respect of previous years. The VOA will not list a property for council tax prior to 1 April 2023, unless it did not meet the criteria in place at the time (at least 140 days available to let and 70 days actually let). 

If an operator is aware that their property has ceased to meet the criteria in place at any given time and wants timely clarity with respect to their resulting council tax liability, they may notify the VOA of this change rather than waiting for their next reassessment. Properties may also be reassessed for other reasons, for example if there has been a change of circumstances or where there has been a change of use.

Which types of property do the changes apply to?

The types of property that are subject to the letting criteria have not changed. Self-catering properties subject to the previous criteria are subject to the new criteria and individual operators should know whether they have previously been required to provide evidence of letting activity to the VOA, to be classified as non-domestic.

The letting criteria apply only to properties classified as self-catering holiday lets by VOA. The VOA is responsible for classifying non-domestic properties based on their use and there are numerous distinct classifications within the broad use category which includes hotels, hostels, guest houses, self-catering holiday lets and others. Properties not classified as self-catering holiday lets are not subject to the letting criteria. It is for the VOA to confirm on a case by case basis whether a property is classified as self-catering. If individual ratepayers do not know whether their specific property is currently classified based on the letting criteria, the VOA will be able to confirm this.

Are there any exceptions or pro-rating of the new criteria?

There are not any exceptions or pro-rating in the application of the letting criteria, which apply equally to all self-catering properties across Wales. If self-catering properties do not meet the criteria, they will be classified as domestic and liable for council tax.

What about self-catering accommodation within the curtilage of a primary home?

The letting criteria apply to all properties classified as self-catering accommodation, including holiday lets within the same curtilage as a primary home. This is not a new principle. If such properties do not meet the criteria, they will be classified as domestic and liable for council tax. The same approach is taken for dwellings which are not let out as self-catering accommodation but which are within the same curtilage as a primary home.     

What about self-catering accommodation subject to planning conditions?

The letting criteria apply to all properties classified as self-catering accommodation, independently of conditions that may be set out in other areas of legislation. This is not a new principle. If such properties do not meet the criteria, they will be classified as domestic and will be liable for council tax.

If my property does not meet the letting criteria, will a council tax premium apply?

If a self-catering property does not meet the letting criteria, it will be classified as domestic and liable for council tax. This may include a council tax premium for second homes. It is for individual local authorities to decide whether to introduce a council tax premium and the level at which to set it.

The Council Tax (Exceptions to Higher Amounts) (Wales) Regulations 2015 (as amended) provide for several classes of exception from a council tax premium. These include: 

(a)    properties restricted by a planning condition preventing occupation for a continuous period of at least 28 days in any one‑year period;
(b)    properties restricted by a planning condition specifying that the dwelling may be used as a holiday let only;
(c)    properties restricted by a planning condition preventing occupancy as a person’s sole or main residence.

Guidance has been issued to local authorities on additional options that are available if self-catering properties restricted by planning conditions do not meet the letting criteria. Local authorities have discretionary powers to reduce council tax bills for particular properties or classes of property. They may use these powers to reduce a bill by any amount, as they see fit, including reducing a bill to zero. 

If a property has multiple self-catering units, will the new criteria apply to each of the units separately?

The criteria apply to each individual unit of self-catering property rated separately by the VOA and this approach has not changed. If you have more than one unit of property at the same location or within very close proximity of each other and used for the same or connected businesses, it will still be possible to take an average for the number of days actually let, if some units are let for at least 182 days and others are not.

Why have these changes been made?

The Welsh Government consulted on changes to local taxes which might help local authorities in managing the impacts that large numbers of second homes and self-catering properties can have in their local areas. Following the consultation, the Welsh Government is of the view that self-catering properties should be classed as non-domestic only if they are used for business purposes for the majority of the year.  The changes were announced on 2 March 2022 and the required legislation was made on 24 May 2022. 

Owners may let their properties as self-catering accommodation for periods which do not meet the criteria for classification as non-domestic, but their properties will be classed as domestic and will be liable for council tax. The purpose of the change is to help ensure property owners are making a fair contribution to local communities. Self-catering operators whose properties meet the thresholds will make a contribution through the higher levels of economic activity they support. Operators whose properties fall below the thresholds will make a contribution through council tax, in the same way as owners who do not meet the current thresholds. 

Has the Welsh Government considered the impact of these changes on the self-catering tourism sector?

Yes, an Explanatory Memorandum and Regulatory Impact Assessment (RIA) was published alongside the legislation at senedd.wales. In the context of the wider policy priority, to support sustainable communities and affordable housing, there is a limit to the evidence available in relation to the impact of any option – including doing nothing. The available evidence is included in the RIA.

A number of possible behavioural changes may occur amongst owners of second homes and self-catering accommodation, in response to these changes. It will be for individual owners to consider the approach to take. The Welsh Government is not able to comment on individual circumstances.