Rating Manual section 6 part 3: valuation of all property classes

Section 480: holiday accommodation (self-catering)

This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.

1. Scope

This section covers self-catering holiday accommodation. Units of self-catering accommodation may be rateable as non-domestic property in the occupation of the business that is running the enterprise. They will be composite if there is long-term accommodation within the curtilage (like a caretaker’s or owner’s flat).

To be non-domestic property, it will have to be made available on a commercial basis for not less than 140 days in accordance with paragraph 5 below. Second homes, which are let occasionally, will not therefore be non-domestic property, but will be banded for Council Tax.

Since 2010 the requirements in Wales are more detailed and are contained in The Non-Domestic Rating (Definition of Domestic Property) (Wales) Order 2010 which amends s.66 LGFA 1988 for Wales. See paragraph 5 below.

2. List Description & Special Category Code

Primary Description Code - CH1

List Description - Holiday Homes (Self-Catering)

Special Category Code 131 G should be used.

3. Responsible Teams

This is a Generalist class of property, to be valued by Generalist valuers in each unit.

4. Co-Ordination

The Class Co-ordination Team has overall responsibility for the co-ordination of this class. Contact details are in VP and CCT Members . The team is responsible for approach, accuracy and consistency of valuations. The team will deliver Practice Notes describing the valuation basis for revaluation and provide advice as necessary during the life of the rating lists. Caseworkers and referencers have a responsibility to:

follow the advice given at all times

  • not depart from the guidance given on appeals or maintenance work, without approval from the co-ordination team

seek advice from the co-ordination team before starting any new work

4.1. Interface with Other Classes

Some self-catering holiday accommodation, especially those units in larger complexes, are physically similar to units in chalet parks and timeshare complexes (particularly the latter). There will also be an interface with caravan parks at the bottom end of the market.

Self-catering accommodation, at the very top end of the market, is likely to be on a par with similar time-share accommodation and the interface needs to be maintained between these two sectors.

There are examples of identical units within the same complex being occupied variously as timeshare and self-catering accommodation. The rateable occupier may or may not be the same person and problems have occurred in previous rating lists in such cases when different levels of assessment have been applied to similar units within the same complex.

Caravan parks and chalet parks are valued by specialists within the Units (who are generally known as the ‘Caravan Specialists’). The National Specialist Unit is responsible for timeshare complexes. Whilst it is anticipated that the recommended valuation scheme will not cause anomalies with these other types of holiday accommodation, valuers should nevertheless be aware of the problems that could arise at this interface.

To ensure a consistent approach,

  • Outside London - self-catering complexes of more than 10 units, together with any cases of difficulty, should be discussed with the Unit Caravan Specialist who may wish to assume responsibility for the valuation.

  • In London there may be an interface with hotels and any such complexes should be discussed with the relevant Hotel Valuer in the Unit or Unit Specialist.

5.1 Statutory Background

Rateability

Self-catering accommodation which is let commercially will be rateable under Section 66(2B) of the LGFA 1988 as amended by SI 1990 No 162. In order to be rateable under this sub-section the accommodation must be:-

self-contained;

available for letting commercially (with a view to making a profit);

for short periods totalling 140 days or more a year.

The relevant valuation provisions are contained in Schedule 6 to the LGFA 1988, as amended by Schedule 5 paragraph 38(4) to the Local Government and Housing Act 1989. It is this amendment that provides for the value to be that which would “reasonably be attributable to the non-domestic use” that allows for the adoption of notional rather than actual patterns of use, where appropriate, when valuing composite hereditaments. It should be noted that, notwithstanding the daily liability that accrues under the provisions of the Act, this amendment allows for the implementation of an arrangement which is from year to year.

Until June 2000 the recommended approach in the Rating Manual had been that availability was indicated by the letting season for which such accommodation was advertised. For example, if a property was advertised with a season from January to December it was treated as available for more than 140 days.

In the Lands Tribunal case of Godfrey v Simm (VO) it was decided that the period for which the operator intended to accept bookings determines the availability of the property. It is therefore now open to an operator to advertise a property as “available” from January to December but if the operator has made a conscious decision not to accept bookings within that period for a total of more than 139 days, the property will not be a non-domestic hereditament and must be entered in the Council Tax Valuation List instead. Before agreeing to delete an existing rating list entry or deciding not to make a new entry, Valuers should expect to see some evidence that a conscious decision has been made to limit the bookings accepted. For example, Mr Godfrey was able to demonstrate that he had operated at, or just below, the 139-day limit for many years and had occasionally declined bookings that would have taken him over this limit. (Advertising material and proof of letting restrictions should be sought).

Property will be domestic and therefore not rateable whenever it is occupied as a sole or main residence (s.66(2D)). This will be the case regardless of the length of that occupation and notwithstanding any intention to make the accommodation available within the terms of s.66(2B).

5.2 Wales

The Non-Domestic Rating (Definition of Domestic Property) (Wales) Order 2010 amends section 66 of the Local Government Finance Act 1988 so that in Wales - from 1 April 2010 for a furnished property to be assessed for non-domestic rating purposes as opposed to council tax it must meet the following conditions:

i) for the 12 months prior to assessment -

a) it must be available for commercial letting to the public for periods which amount, in aggregate, to not less than 140 days;

b) the periods for which it is so let amount, in aggregate, to at least 70 days; and

ii) for a period comprising at least 12 months following the assessment, it must be available for commercial letting to the public for periods which amount, in aggregate, to not less than 140 days.

The approach therefore is similar to the existing approach adopted in England but with the additional requirement to consider both the 12 months prior to assessment and the periods for which the premises are let total at least 70 days.

5.3 Purpose of approach in Wales

The object of the legislation was to close what was seen as a potential loophole whereby owners of properties that are predominately unoccupied, used as second homes, or occupied for most of the time by the owner, can effectively reduce the tax liability on their properties by becoming liable to pay non-domestic rates instead of council tax. This could happen by declaring that a property is available for let for short periods totalling at least 140 days in a year, but making little or no realistic effort to actually do so, by, for example, not actively marketing the property, asking for unrealistic rents, or restricting the dates that the property is actually available to let. Since 2003, properties unoccupied for more than 6 months and second homes now pay the full council tax in most of Wales.

The non-domestic liability for a property may be less than its council tax liability. This differential increased from 1 April 2007 when the small business rates relief scheme was introduced in Wales; properties with a rateable value up to £2,000 receiving a 50% discount on their rates, and those with a rateable value of between £2,001 and £6,500 receiving a 25% discount. Small Business Rates Relief in Wales is to continue until 31st March 2016; properties with a rateable value up to £6,000 are eligible for 100% discount on their rates, the rate of relief decreases from 100% to 0% on those with a rateable value of between £6,001 and £12,000.

5.4 Practical application in Wales

Where an existing domestic property currently assessed to CT is to be considered for assessment as self-catering holiday accommodation, an inspection should be made (unless current information is considered sufficient), and full details of the property should be obtained including letting tariffs, relevant grading e.g. AA or Visit Wales , whether let through an agency and the current level of bookings.

If at the relevant date the property has been commercially let for 70 days and has been available for such letting for at least 140 days, and is available for such letting for 140 days in the next 12 months, and the required information has been supplied to verify this - then it may be brought immediately into the rating list. The effective date of this alteration will be the date when the provisions of s66 subsection 2BB were first satisfied by the current ratepayer. If these conditions are still to be met, the occupier should be informed that, until such time as the property fulfils the provisions of s66 Subsection 2BB of LGFA 1988 at the relevant date (i.e. it has been commercially let for a total of 70 days and has been available for letting 140 days), it cannot be entered into the rating list and needs to remain in the Council Tax valuation list. Only when the required conditions have been met will the property fall to be assessed for Non-Domestic Rating purposes from the day on which it first met the provisions of s66 ss2BB with the entry for this property in the Council Tax list deleted from the same date. The letter at Appendix 1 should be used.

5.5 Lettings for Short Periods

Section 66(2B) refers to the availability of the relevant accommodation for letting commercially for short periods totalling 140 days or more. There is no definition in either Act or Order of what comprises a short period.

Although ultimately a matter to be resolved by the Courts, VOs should assume that letting “for short periods” means letting for periods of a month or less, to different individuals on each occasion. Otherwise, for example, a letting to persons working away from their sole or main residence on a semi-permanent basis, could become rateable where, perhaps, there was a monthly tenancy that had lasted for as long as 3 years.

The interpretation that we are adopting means that a property could still be rated when it is the subject of a periodic letting (of a month or less), provided the tenants change frequently, and provided that the property is not their sole or main residence.

5.6 Lettings to Students

There are further complications when there is occupation by students at some time during the year. Such lettings are unlikely to be for short periods and so there must be availability for short lettings for 140 days or more to tenants other than students (i.e. outside term time) for the property to be non-domestic. Under the Community Charge Legislation (s.2(5A) LGFA 1988) student accommodation was deemed to be the student’s sole or main residence both during and outside term time. But there were special provisions (s.66(2D) LGFA 1988) which enabled such property to be treated as non-domestic outside term time if it was available for short term lettings for 140 days or more.

Although these deeming provisions have been repealed by the Local Government Finance Act 1992, it is still arguable that the student accommodation is the student’s sole or main residence during term time. Requests to delete such accommodation from the Rating List should be acceded to, and the property should be entered in the Council Tax Valuation List instead.

5.7 Homes of Foreign Nationals

For the avoidance of doubt, UK homes of foreign nationals will be domestic property because they will not be lettings for short periods as defined in paragraph 5.1 above.

5.8 Other Types of Self-Catering Accommodation

In addition to short stay commercial self-catering usage as already described, there are a number of other types of self-catering holiday accommodation which may be rateable under Section 66(2) LGFA 1988. These include:-

Hostels (such as those run by the Youth Hostels Associations).

Holiday Cottages run on a non-commercial basis (such as those used by mountaineering or cycling clubs, or by charitable organisation).

Holiday Flatlets providing accommodation which is not self-contained. (It is envisaged that the same broad valuation approach will apply to these as to self-contained holiday flats which are in one rateable occupation).

If such properties do not conform to the definition of “self-contained self-catering accommodation provided commercially”, the 140 day test in Section 66(2B) LGFA 1988 will not be applicable. For them to be rateable, they merely need to be wholly or mainly used in the course of a business for the provision of short-stay accommodation to individuals whose sole or main residence is elsewhere (s.66(2)(a) LGFA 1988).

6. Survey Requirements

Number of Single Bed Spaces (SBS) - In calculating bed spaces, double and twin rooms will count as two SBSs and a single room as one. A bunk bed occupying a single size room will count as one space. A bunk squeezed into a double room to form a ‘family’ room should be ignored, as should ‘put-you-ups’. With regard to flats with no separate bedrooms, where there is a ‘bed-settee’ in the living area then this should be included as a single bed space.

Self-contained holiday accommodation is likely to be drawn to the VO’s attention from a number of sources.

Tourist handbooks and guidebooks are an obvious source of useful information; newspapers and magazine advertisements another; local information will be important.

7. Survey Capture

Rating surveys for singles and complexes up to 4 units should be captured on the Rating Support Application (RSA). In all cases plans and surveys should be stored in the property folder of the Electronic Document Records Management (EDRM) system.

8. Valuation Approach

8.1 Rental Basis

Form of return (FOR) VO 6048 is specifically for self-catering accommodation. Details of rent, gross receipts and tariff are requested. Very few self-catering units are let on an open market rental basis. Consequently it is not normally possible to establish a scheme based solely on rental evidence.

8.2 Receipts & Expenditure Basis

As the largest body of evidence is likely to be in the form of gross receipts, schemes of valuation should be derived from an analysis of a cross-section of accounts information.

It is important when looking at accounts to ensure that properties are let to their full commercial potential, as there can be a variety of reasons for owning a single property for letting, which do not apply to multiple properties, e.g. a holiday home for own use, a legacy, potential retirement home etc.

Complexes (5 units and above) will almost invariably be let commercially.

When analysing accounts for complexes of self-catering units, and single properties where it can be identified that these are being commercially let, the following approach to analysis is recommended:

a. Income should be assumed as being gross, inclusive of commission, which normally varies between 20 and 25%.

b. Tenants share should normally be taken at 50%, (up to 55% where there is an exceptional standard of equipment).

The analysis of accounts of self-catering units that are wholly commercial should be expressed as percentage of gross receipts before deduction of commission. The actual percentage will be determined by the relativity between the income achieved and the costs incurred in achieving it. For instance if two properties produce the same income but one generates this purely through location and has limited expenditure the % of receipts will be higher than one in a poorer location with significant overheads. The outcome should also be back analysed in terms of a price per Single Bed Space (SBS).

8.2.1 Use of Gross Receipts

It is important to use this information correctly. For example, two similar properties could have significantly different levels of gross receipts due to one having a higher standard of non-rateable items and/or a different quality of service provided by the owners. Similarly, one owner may adopt a more vigorous marketing campaign than another and, as a result, achieve higher gross receipts.

Gross receipts generated by a property should not be used in isolation as an incorrect assessment may result. Regard must also be had to the general levels of fair maintainable trade achieved by similar properties in the area.

8.2.2 Tariffs

When provided, or where it can be identified in a brochure, tariff information for a unit can be a useful supplement to basic gross receipts information. Only peak season tariffs should be compared, as off peak tariffs are likely to vary more considerably. The description of facilities and amenities provided in respect of a particular property will help identify non-rateable elements. However, tariffs must be treated with some caution because they may not represent the actual payment nor give an indication or explanation of volumes. Therefore, a tariff rate in isolation may be misleading, as it does not give an indication of occupancy levels.

8.3 Valuation Evidence

Self-catering units up to 4 - Discussions with letting agents have demonstrated that the preferred unit of valuation and comparison for holiday lettings of self-catering accommodation is the single bed space (SBS). Accordingly, it is recommended that a SBS per Beacon type should be adopted as the primary means of comparison for single properties and complexes up to 4 units. Following receipts & expenditure analysis of a representative cross-section of properties, each Unit should compile a grid providing the price per SBS for each category of self-catering unit.

Self-catering complexes - 5 units and above - Sample analysis should be undertaken across the country using full R&E to inform the percentage to be applied to Gross Receipts.

Reference should be made to the relevant Practice Note for further guidance.

8.4 Monitoring Changes

Where properties move from rating to Council Tax because they are occupied by students or otherwise as sole or main residences during the winter months, it will be necessary to monitor those hereditaments during the holiday season so that they can be brought into rating when the sole or main residency ceases (providing of course there is still an intention to let as short stay accommodation for 140 days or more). Valuation Officers will need to maintain check lists for this purpose.

9. Valuation Support

Rating Support Application (RSA) for Single Self Catering Units up to 4

Complexes of 5 units and above will be valued on spreadsheets

Survaid

Class Co-ordination Team

Practice Note 1: 2017: Holiday Accommodation (Self Catering)

1. Market Appraisal

By way of background, the sharp rise in house prices between 2000 and 2008 encouraged many people to purchase second homes. In view of the tax advantages many of those properties entered the self-catering market. Often the properties were not being run as viable commercial businesses, the aim being simply to assist in meeting overheads.

By 2010 the demand for second homes arising from the increase in house prices had come to an end and more owners were focussed on mitigating expenses during a recessionary period. This translated in some further increase in the supply of holiday lettings. The changes introduced to the Furnished Holiday Letting national taxation regime by the 2011 Finance Act was a further contributory factor to the supply chain because of the increase in the minimum period over which a qualifying property must be available for letting in the relevant period from 140 days to 210 days in a year with effect from April 2012. The minimum period over which a qualifying property is actually let in the relevant period increased from 70 days to 105 days in a year. Thus from a taxation perspective, both these changes mean properties must be let for longer periods than previously for second home owners to qualify for valuable tax advantages.

During the past two years the strengthening pound has dampened demand for UK holidays as overseas holidays have become relatively less expensive.

The consequential increase in supply and fall in demand has resulted in downward pressure on achieved rates particularly for poorer locations during the off-peak season. It is not uncommon for holiday letting agents to offer discounts of up to 25% against the tariff price to produce an income flow. Therefore, some caution must be exercised when considering tariff rates as a comparator.

Self-catering accommodation was most popular for those visiting the seaside or the countryside, where it accounted for 33% and 35% respectively of trips by region. Those visiting large cities were least likely to stay in holiday rentals.

In some instances this has meant that income since the last AVD has not kept pace with increased overheads. The profitability of such units has therefore diminished.

Specific locations where supply remains limited continue to achieve good returns. With consumers generally demanding better quality self-catering accommodation, properties at the upper end of the market, and in better locations, do relatively better than basic units with fewer or poorer facilities

2. Changes from last Practice Note

There have been discussions with the industry which have involved changes to consolidate the basis for both singles and multiples into two national schemes of valuation. Self-catering units up to 4 will continue to be analysed on a price per single bed space, complexes (5 units and over) to be valued using a percentage of gross receipts.

3. Ratepayer Discussions

For the 2017 Revaluation the VOA has worked closely with the English Association of Self-catering Operators (EASCO) to develop schemes of valuation that can be more easily understood by the ratepayer.

4. Valuation Scheme

4.1 Self-Catering Single units & Complexes up to 4 units

4.1.1 Location and Quality - It is self-evident that both location and quality (to reflect all advantages/disadvantages associated with the property) play an important part in arriving at the value of a self-catering unit. Accordingly it is important that valuations reflect both location and quality in every instance. Notwithstanding the wide variety of property types within the self-catering market it is considered that four main levels (with appropriate adjustments for quality and location) will normally be adequate.

4.1.2 Number of Single Bed Spaces - Local evidence will determine how quantity affects value, but experience shows that the standard size of a unit in most locations will be between four and six single bed spaces.

4.1.3 Valuation Scales - Values of SBS should be derived from the evidence obtained from analysis of accounts and receipts of commercially run self-catering hereditaments. A detailed explanation as to the correct approach when carrying out a Receipts and Expenditure valuation is contained in Section 4 Part 2 of Rating Manual

Rental values should be arrived at and then devalued in terms of SBS. As the SBS scales will be derived from full accounts and comparing properties of a similar type, it is anticipated that anomalies will be minimised.

The values of SBSs for 2017 should be incorporated within the following scales:

4.1.4 Self-Catering Holiday Home Categories (Up to 4 units)

Location

Category 1 Will be recognised as a prime location, being a highly sought after area or ‘hot spot’ for self-catering. It may have tourist attractions and areas of outstanding natural beauty, seaside or historic market towns and cities. Properties in a prime location will command very high tariffs and have very high occupancy levels, even at off-peak times.

Category 2 This is the type of location in which the majority of self-catering properties will be situated and may be described as good. It will offer a wide range of popular and well established amenities and may be near tourist attractions and areas of natural beauty. Vacancy rates will be low at ‘peak’ times.

Category 3 These locations will usually be further away from tourist attractions and amenities. Tariffs will be lower than prime and good locations and generally properties will be slightly harder to let.

Category 4 By their nature this type of location will usually have a low number of self-catering properties. The location may have close proximity to non-residential buildings or have other inherent factors which impact on its appeal. In these locations properties will be difficult to let, have low tariffs and achieve low numbers of lets.

Care must be taken by valuers not just to ‘rank’ their self-catering properties into four categories but to decide whether a particular location is actually 1, 2, 3 or 4. For example, some Units may not have any Category 1 locations and the majority of their properties may be in Category 2.

Quality

In order to define the quality a judgement must be made based on the physical attributes of the property in accord with the definitions below:

Category A High quality modern or modernised properties significantly above average attractiveness/value for the type/location. The property may be detached, offer parking, additional bathrooms, additional reception rooms, very well maintained gardens and facilities significantly above standard accommodation. A comparatively high level of investment in maintaining and presenting the property will be required to achieve maximum tariffs.

Category B Most properties will fit into this category, which may be described as ‘standard’. These properties will have the typical range of facilities for a self-catering property, without the distinguishing features of Category A. They will usually have central heating and double glazing and a reasonable quality kitchen and bathroom.

Category C These are basic properties below ‘standard’ quality. There will be a low level of investment in maintaining and presenting the property. Room sizes will typically be smaller, with shared facilities. There will be a lack of all standard facilities such as heating, double glazing and an absence of any modernisation. Very few properties will meet the criteria of this category.

4.2 Self-Catering Complexes (5 units and above)

The larger complexes, those with more than 4 units, should be compared in terms of a percentage of gross receipts. As a general rule complexes will be more efficient to operate than single units, although this will be greatly affected by the voids encountered. Additionally the costs of providing additional facilities must be reflected when making any comparison.

The method of valuation for multiple self-catering units will follow the principle set out by the singles. The major difference is that location will not be used as a factor as this will already be apparent in the Fair Maintainable Trade, the defining factor will be quality. The same quality indicators will exist for both Units up to 4 and Complexes. The choice of category is driven by the quality of the accommodation and the appropriate percentage should be adopted after the three categories have been considered.

Quality

When deciding on the appropriate percentage to adopt, the following approach should be taken. In order to define the quality a judgement must be made based on the physical attributes of the property in accord with the definitions below:

Category A High quality modern or modernised units significantly above average attractiveness/value for the type/location. The units will usually be detached, have high quality facilities significantly above standard accommodation - key indicators include - swimming pools, tennis courts, games room, sauna, hot tubs and animal petting. A comparatively high level of investment in maintaining and presenting the property will be required to achieve maximum tariffs.

Category B Most properties will fit into this category, which may be described as ‘standard’. These properties will have the typical range of facilities for a self-catering property, without the distinguishing features of Category A. They will usually have central heating and double glazing and a reasonable quality kitchen and bathroom.

Category C These are basic properties below ‘standard’ quality. There will be a low level of investment in maintaining and presenting the property. Room sizes will typically be smaller, sometimes with shared facilities. There will be a lack of all standard facilities such as heating, double glazing and an absence of any modernisation. Very few properties will meet the criteria of this category.

Typical percentage to be applied to each category derived from accounts analysis -

For guidance - if the net profitability of a complex is greater or less than normal these rates can be adjusted above or below the norm expectation.

For example factors such as; Listed Building status and the costs associated with this, and how the property is operated - additional service provision by the operator, are likely to justify a downwards adjustment in the percentage applied.

This Practice Note should enable all self-catering units to be valued, however in exceptional circumstances a full R&E approach is not precluded. Any such cases should be referred to the CCT for guidance.

4.3 Other Considerations

For some of the larger self-catering complexes there may be some crossover with other classes such as Caravans and Chalet Parks - please see the guidance concerning co-ordination in the main Self-Catering Section in the Rating Manual - (Para 4.1).

4.4 Source Data

Details of the supporting R&E analysis are available from the CCT should this be necessary prior to any Valuation Tribunal or Upper Tribunal hearings.

Category % Applied
A 17.5%
B 20.0%
C 22.5%

Practice Note 1: 2010: Holiday Accommodation (Self Catering)

1. Co-ordination Arrangements

This is a Group Class. Co-ordination responsibilities are set out in Rating Manual Section 6 : Part 1.

For R2010 Special Category Code 131 (Holiday Homes Self Catering) should be used. As a Group Class, the appropriate suffix letter should be G.

2. State of the Industry

The rise in house prices between 2000 and the middle of 2007 encouraged many people to purchase second homes. Some were acquired with a view to retirement whilst others were bought as an investment in a buoyant property market. In view of the tax advantages many of these properties have entered the self-catering market. Often these properties are not being run as viable commercial businesses, the aim being simply to assist in meeting overheads.

The result of the supply of many more units on the market has meant that in less popular areas for some periods of the year there may be a surplus of accommodation. In some instances this has meant that income since the last AVD has not kept pace with increased overheads. The profitability of such units when valued in accordance with the rating hypothesis has therefore been diminished.

Specific locations where supply remains limited continue to achieve good returns. With consumers generally demanding better quality self-catering accommodation, properties at the upper end of the market, and in better locations, do relatively better than basic units with fewer or poorer facilities.

3. Valuation Approach 2005

There was a general move towards a standard valuation approach for the 2005 list with a single bed space being the primary means of comparison.

In some areas, however, adopting a percentage of gross receipts remained the preferred means of establishing a rateable value.

4. Valuation Approach 2010

4.1 Evidence

4.1.1 Rents - Form of return (FOR) VO 6048 is specifically for self-catering accommodation. Details of rent, gross receipts and tariff are requested. Very few self-catering units are let on an open market rental basis. Consequently it is not normally possible to establish a scheme based solely on rental evidence.

4.1.2 Gross Receipts – As the largest body of evidence is likely to be in the form of gross receipts, it is important to use this information correctly. For example, two similar properties could have significantly different levels of gross receipts due to one having a higher standard of non-rateable items and/or a different quality of service provided by the owners. Similarly, one owner may adopt a more vigorous marketing campaign than another and, as a result, achieve higher gross receipts.

Gross receipts generated by a property should not be used in isolation as an incorrect assessment may result. Regard must also be had to the general levels of fair maintainable trade achieved by similar properties in the area.

4.1.3 Tariffs – When provided, or where it can be identified in a brochure, tariff information for a unit can give an advantage over basic gross receipts information. Only peak season tariffs should be compared, as off peak tariffs are likely to vary more considerably. The description of facilities and amenities provided in respect of a particular property will help identify non-rateable elements. However, tariffs must be treated with some caution because they may not represent the actual payment nor give an indication or explanation of volumes. Therefore, a tariff rate in isolation may be misleading, as it does not give an indication of occupancy levels.

4.1.4 Full Accounts - It is important when looking at accounts to ensure that properties are let to their full commercial potential, as there can be a variety of reasons for owning a single property for letting, which do not apply to multiple properties, e.g. a holiday home for own use, a legacy, potential retirement home etc. Part C of form VO6048 (03/08) helps in this respect.

Small complexes (2-9 units) will almost invariably be let commercially.

When analysing accounts for small complexes of self-catering units, and single properties where it can be identified that these are being commercially let, the following approach to analysis is recommended:

a. Income should be assumed as being gross, inclusive of commission, which normally varies between 20 and 25%.

b. Tenants share should normally be taken at 50%, (up to 55% where there is an exceptional standard of equipment).

The analysis of accounts of self-catering units that are wholly commercial generally produces rateable values of between 20% and 30% (average 25%) of gross receipts before deduction of commission. The actual percentage will be determined by the relativity between the income achieved and the costs incurred in achieving it. For instance if two properties produce the same income but one generates this purely through location and has limited expenditure the % of receipts will be higher than one in a poorer location with significant overheads.

4.2 Valuation Basis

Discussions with letting agents have demonstrated that the preferred unit of valuation and comparison for holiday lettings of self-catering accommodation is the single bed space (SBS). Accordingly, it is recommended that a SBS per Beacon type (see 4.2.1 below) should be adopted as the primary means of comparison for single properties and complexes for the 2010 Revaluation.

4.2.1 Location and Quality - It is self evident that both location and quality (to reflect all other advantages/disadvantages associated with the property) play an important part in arriving at the value of a self-catering unit. Accordingly it is important that each beacon type above reflects both location and quality in every instance. Notwithstanding the wide variety of property types within the self-catering market it is considered that four main levels (with appropriate adjustments for quality and location) will normally be adequate.

  • Prime

  • Good

  • Fair

  • Poor

4.2.3 Number of Single Bed Spaces - In calculating bed spaces, double and twin rooms will count as two SBSs and a single room as one. A bunk bed occupying a single size room will count as one space. A bunk squeezed into a double room to form a ‘family’ room should be ignored, as should ‘put-you-ups’. With regard to flats with no separate bedrooms, where there is a ‘bed-settee’ in the living area then this should be included as a single bed space.

Local evidence will determine how quantity affects value, but experience shows that the standard size of a unit in most locations will be between four and six single bed spaces.

4.2.4 Valuation Scales - Values of SBSs should be derived from the evidence obtained from analysis of accounts and receipts of commercially run self-catering hereditaments. A detailed explanation as to the correct approach when carrying out a Receipts and Expenditure valuation is contained in Section 4 Part 2 of Rating Manual

Rental values should be arrived at and then devalued in terms of SBS. As the SBS scales will be derived from full accounts and comparing properties of a similar type, it is anticipated that anomalies will be minimised.

The larger complexes, those with more than 10 units, should be compared in terms of a percentage of gross receipts. As a general rule complexes will be more efficient to operate than single units, although this will be greatly affected by the voids encountered. Additionally the costs of providing additional facilities must be reflected when making any comparison.

It is suggested that values of SBSs within single units for 2010 can be incorporated within the following scales:

NUMBER OF SBSs
QUALITY LOCATION 2 3 4 5 6 7 8 9 10
Prime
Good
Average
Poor

5. Interface with Other Classes

Some self-catering holiday accommodation, especially those units in larger complexes, is physically similar to units in chalet parks and timeshare complexes (particularly the latter). There will also be an interface with caravan parks at the bottom end of the market.

Self-catering accommodation, at the very top end of the market, is likely to be on a par with similar time-share accommodation and the interface needs to be maintained between these two sectors.

There are examples of identical units within the same complex being occupied variously as timeshare and self-catering accommodation. The rateable occupier may or may not be the same person and problems have occurred in previous rating lists in such cases when different levels of assessment have been applied to similar units within the same complex.

Caravan parks and chalet parks are “Group” National Scheme Classes, valued by specialists within Group offices (who are generally known as the ‘Caravan Specialists’). Specialist Rating Units are responsible for timeshare complexes. Whilst it is anticipated that the recommended valuation scheme will not cause anomalies with these other types of holiday accommodation, valuers should nevertheless be aware of the problems that could arise at this interface.

To ensure a consistent approach, outside London all files of self-catering complexes of more than 10 units, together with any cases of difficulty, should be sent to the Group Caravan Specialist who may wish to assume responsibility for the valuation. In London there may be an interface with hotels and any such complexes should be discussed with the relevant Hotel Valuer in the Group or SRU.

6. IT Support

The development within RSA of analysis and valuation scales specifically for this class should enable input of factual data to achieve valuations that follow the recommended approach.

Practice Note 1: 2005: Holiday Accommodation (Self Catering)

1. Co-ordination Arrangements

This is a Group Class. Co-ordination responsibilities are set out in Rating Manual: section 3 part 4.

For R2005 Special Category Code 131 (Holiday Homes Self Catering) should be used. As a Group Class, the appropriate suffix letter should be G.

2. State of the Industry

During the 2000 rating list, the self-catering industry was substantially affected in some locations by the outbreak of Foot and Mouth Disease early in 2001. Caution should therefore be exercised if the accounts showing the receipts for the 2001 season are considered as the figures may be distorted either way. By the Antecedent Valuation Date (AVD) in April 2003, the effects of FMD in the majority of locations had disappeared.

The American economy was in decline, which resulted in a fall in the numbers of American tourists. Two other events may have affected the number of foreign tourists visiting Britain, namely the September 11th 2001 attack on the World Trade Center in New York and the 2003 war in Iraq. It is likely that the impact of these world events on the self-catering market would be limited particularly as most demand comes from the home market.

At the AVD, the value of the pound against most foreign currencies (particularly the Euro), was falling which resulted in it becoming more expensive to holiday abroad in real terms. Nevertheless, the success of cheap airlines flying from regional airports to the continent maintained the growth in the number of main holidays from the UK being taken abroad. To counter this short breaks, often in off-peak periods, were becoming more popular at AVD and thereby extending the letting season in many areas.

Generally, consumers are demanding better self-catering accommodation and it is therefore likely that properties at the upper end of the market will do relatively better than basic units with fewer or poorer facilities.

3. Valuation Approach – 2000

There was a general move towards a standard valuation approach for the 2000 list with a single bed space being the primary means of comparison.

In some areas, however, adopting a percentage of gross receipts remained the preferred means of establishing a rateable value.

4. Valuation Approach 2005

4.1 Evidence

4.1.1 Rents - very few self-catering units are let on an open market rental basis. Consequently it is not normally possible to establish a scheme based solely on rental evidence. Offices made enquiries as to receipts and tariff and, to promote consistency, a new form of return (FOR) VO 6048 has been introduced for the 2005 revaluation specifically for self-catering accommodation. Details of rent, gross receipts and tariff are requested.

4.1.2 Gross Receipts – As the largest body of evidence is likely to be in the form of gross receipts, it is important to use this information correctly. For example, two similar properties could have significantly different levels of gross receipts due to one having a higher standard of non-rateable items and/or a different quality of service provided by the owners. Similarly, one owner may adopt a more vigorous marketing campaign than another and, as a result, achieve higher gross receipts.

Care must therefore be exercised if gross receipts are used in isolation as an incorrect assessment may result unless regard is also given to the general levels of fair maintainable receipts in the area.

4.1.3 Tariffs – when provided or where it can be identified in a brochure, tariff information for a unit can give an advantage over basic gross receipts information. Only peak season tariffs should be compared as off peak tariffs are likely to vary more considerably. The description of facilities and amenities provided in respect of a particular property will help identify non-rateable elements. A tariff rate in isolation may be misleading as it does not give an indication of occupancy levels. Additionally, significant problems may also be experienced when trying to match up individual properties with their brochure entries.

4.1.4 Full Accounts - as HMIT do not require a full set of accounts to be submitted for single property lettings formal accounts may not always exist. There may therefore be difficulties identifying single properties let to their full commercial potential as there can be a variety of reasons for owning a single property for letting, which do not apply to multiple properties, eg. holiday home for own use, a legacy, potential retirement home etc.

Small complexes (2-9) will, on the other hand, almost certainly be let commercially and have full accounts.

When analysing accounts for small complexes of self-catering units, and single properties where it can be identified that these are being commercially let, the following approach to analysis is recommended: -

a. Income should be assumed as being gross, inclusive of commission, which normally varies between 20 and 25%.

b. Tenants share should normally be taken at 50%, up to 55% where there is an exceptional standard of equipment.

The analysis of accounts of complexes of self-catering units produces rateable values of up to 25% of gross receipts (before deduction of commission). Analysis of accounts of single units shows a wide range of rateable values in terms of a percentage of gross receipts, emphasising the difficulties involved in analysing both gross receipts and the accounts of single units.

4.2 Valuation Basis

Discussions with letting agents have demonstrated that the preferred unit of valuation and comparison for holiday lettings of self-catering accommodation is the single bed space (SBS). Accordingly, it is recommended that the SBS should be adopted as the primary means of comparison for single properties and complexes for the 2005 Revaluation. Values should be derived from the evidence as set out at para 4.1 above, and principally from analysis of accounts and receipts of commercially run self-catering hereditaments. The larger complexes, those with more than 10 units, should also be compared in terms of a percentage of gross receipts. As the SBS scales will be derived from analysis of gross receipts and accounts, it is anticipated that anomalies will be minimised.

4.2.1 Single Bed Space - as the new FOR requests details of the accommodation (See Part A Section 5), depending on the number of FORs returned, all offices should have significantly more information on bed spaces. Details, however, should still be confirmed/gathered during the course of monitoring the new rating list.

In calculating bed spaces, double and twin rooms will count as two SBSs and a single room as one. A bunk bed occupying a single size room will count as one space. A bunk squeezed into a double room to form a ‘family’ room should be ignored, as should ‘put-you-ups’. With regard to flats, where there is adequate space in the living area to have a ‘bed-settee’ this should be included as a single bed space.

4.2.2 Location - it is self evident that location plays an important part in arriving at the value of a self-catering unit and, when constructing scales, it is recommended that they reflect a property’s general geographic location and its situation within that location. The recommended four main locations are ‘prime’, ‘good’, ‘fair’ and ‘poor’ and the local situations ‘best’, ‘standard’ and ‘inferior’. All should be determined by the local office.

It is important that the distinction between locations relates to value and not simply reflect the preference of the Valuer, although very often it may mean the same thing. For example, if one property is perceived to be in a better location than another but there is no actual value difference shown by the evidence, then the position of the two properties within the scale would be the same.

4.2.3 Beacon - notwithstanding the wide variety of properties within the self-catering holiday accommodation market, it is considered a single all embracing scale, with the facility of end quality adjustments, will normally be adequate. The numbers of this class of property in any given location will give a broad indication for the demand

The four beacons identified for coordination purposes are as follows:

1) 1 bed flat (two single or one double) 2 SBU
2) 2 bed terraced cottage 4 SBU
3) 3 bed detached cottage 5/6 SBU
4) Large detached cottage/farmhouse/barn conversion 8-10 SBU

For comparison purposes the recommended beacon will be heated with free parking facilities within the property or in close proximity.

As non-rateable items such as furniture and equipment can significantly affect the trading performance, first hand knowledge of a property or its brochure details will be of valuable assistance. The beacon will however be assumed to provide furnishings and equipment of a standard to meet modern expectations.

4.2.4 Adjustments - where the hereditament is not on all fours with the beacon, adjustments should be made to reflect variances such as no parking, no heating or the use of free facilities (swimming pool, tennis courts etc) at or adjacent to the properties. These adjustments should be based on local evidence.

4.2.5 Quantity - local evidence will determine how quantity affects value, but experience shows that the standard size of a unit in most locations will be between four and six single bed spaces.

As referred to at para 4.1.4 above, as a general rule, complexes will be more efficient to operate than single units, and the scales should reflect this.

5. Interface with Other Classes

Some self-catering holiday accommodation, especially those units in larger complexes, is physically similar to units in chalet parks and timeshare complexes (particularly the latter). There will also be an interface with caravan parks at the bottom end of the market.

Self-catering accommodation, at the very top end of the market, is likely to be on a par with similar time-share accommodation and hence the need to maintain an interface between these two sectors.

There are examples of identical units within the same complex being occupied variously as timeshare and self-catering accommodation. The rateable occupier may or may not be the same person and problems have occurred in previous rating lists in such cases when different levels of assessment have been applied to similar units within the same complex.

Caravan parks and chalet parks are “Group” National Scheme Classes, valued by specialists within Group offices (who are generally known as the ‘Caravan Specialists’) under the guidance of the National Specialist Valuer. A National Specialist Valuer is also responsible for timeshare complexes. Whilst it is anticipated that the recommended valuation scheme will not cause anomalies with these other types of holiday accommodation, valuers should nevertheless be aware of the problems that could arise at this interface.

To ensure a consistent approach, outside London all files of self-catering complexes of more than 10 units, together with any cases of difficulty, should be sent to the Group Caravan Specialist who may wish to assume responsibility for the valuation. In London there may be an interface with