UK Holiday Lets - How Do I Invest by LettingFocus
Is it sensible to invest in holiday lettings?
The growth in UK second homes has meant that owners of property which is let for holiday purposes have also seen good price growth.
However, there are still many cheap and attractive pockets rural and coastal areas, so if you can spot an attractive area that has so far been overlooked by second home owners and which could be easily let to holidaymakers, then you could do quite well, not least because the tax breaks on holiday lets are very good.
HMRC classifies holiday lettings as a business, (not as unearned or investment income which is the way it treats longer term lets) but the rules are quite strict about what qualifies as a holiday let.
In order to be a holiday let, the property has to be furnished to a level suitable for normal occupation and available to be let to the public for at least 140 days of each year. In addition, it also must be actually let for 70 days and not let to the same person for more than 31 consecutive days in a seven month period.
Real Rents
The lets themselves must be real rents, so you have to charge market holiday let rates, even if you let to friends!
With a holiday let you don’t have option of going for a wear and tear allowance, as you would with normal buy to let (longer term lets), but you are able to claim all repairs, agency and advertising fees, cleaning costs, heating and lighting costs, insurance and the costs of decoration and interest on any loan.
Capital allowances on the costs of furnishings, fixtures and fitting can be claimed too.
If the holiday let makes a loss you can offset that against your other income. (With longer term buy to lets you can only carry forward and set off against future rental profits)
However, the really neat thing about holiday lets is that capital gains tax is much gentler than with longer term lets.
Business Asset Taper Relief
Since holiday lets are treated as a business, the taper relief used is the Business Asset Taper Relief Rate. (Long term residential lets have to use the less advantageous non Business Asset Taper Relief)
Business Asset Taper Relief is nil for properties held for less than a year, but then 50% if held for between one and two years and 75% if held for two or more years.
This means if you make a £100,000 gain, once taper relief is applied, only £25,000 is taxable. Once a couple applies their annual CGT allowances of £17,600 (£8,800 each) the CGT would only be paid on £7,400.
Compare this with Non Business Asset Taper Relief on normal buy to lets where the maximum taper relief is 40% - and then only after 10 years!
Also, just as with most business type capital gains, with a holiday let you can roll over all the capital gains onto another UK holiday let property as long as the full amount of the sale proceeds are rolled over onto the next property. (However, you must do this either less than one year before or three years after the sale of the first property.)
A standard buy to let loan will not be suitable because they the lender will require the property is let to tenants.
Mortgage Options are Few
Looking around, the number of players in the holiday let mortgage market is quite limited.
The Scarborough Building Society is one of few with a product.
Brokers are the best bet for arranging holiday home insurance cover. The internet has a long list of brokers specialising in this area.
To achieve success in this market, you have to buy in the right area. English Country Cottages says their average occupancy rate is about 22 weeks a year, so you have to make your money in a short season.
Also, the Chancellor did not give those juicy business tax breaks for nothing. This is a really hard business and the workload is high.
Standards Please!
Guests will expect a high standard of cleanliness and service. And things must be fixed promptly, so if you are not there to do it, someone else must be.
If someone else does all this for you, expect to see 20-35% disappear in agency and admin fees.
In addition marketing costs will be high, at least at first, before you can rely on word of mouth and repeat visits.
You will have to join a good website and pay to get in the latest guides. Budget to spend from £500 per annum for effective marketing.
CHECK OUT OUR SITE LETTINGFOCUS.COM:
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
ONE TO ONE PRIVATE CONSULTING click here: Property Mentoring
NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS on a range of products for landlords too; click here including landlords insurance, tenant referencing, tenancy agreements and more: Services and Products for Landlords
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
PAST CLIENT TESTIMONIALS from past customers – both commercial and private click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
ABOUT US
LettingFocus.com are the experts on landlord issues and I’m David Lawrenson, the author of “Successful Property Letting” – which has been the UK’s top selling property and buy to let book for the last 3 years.
We help landlords and property investors make money in property by coaching them in ways that work, that are ethical and which involve minimal risk.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased buy to let advice for property buyers and landlords both on a one to one mentoring and coaching basis as well as through occasional group seminars.
Property syndicates and property advice in the UK is still largely unregulated and what counts as “advice” is too often more about making the promoter money than giving useful information to the investor.
With no link to property firms, developers or bridging loan providers, at LettingFocus, we aim to give unbiased independent advice on where and what type of property to buy for investment, when to buy and how to buy property at a low price.
We also show you how to manage tenants properly and in ways that take up as little of your time as possible.
Finally, we advise companies such as banks, local authorities and social housing providers with their landlord or buy to let facing strategy.
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com - Please note we WILL NOT send spam or sell our mailing list to advertisers!
IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR OUR WEBSITE?
Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!
The growth in UK second homes has meant that owners of property which is let for holiday purposes have also seen good price growth.
However, there are still many cheap and attractive pockets rural and coastal areas, so if you can spot an attractive area that has so far been overlooked by second home owners and which could be easily let to holidaymakers, then you could do quite well, not least because the tax breaks on holiday lets are very good.
HMRC classifies holiday lettings as a business, (not as unearned or investment income which is the way it treats longer term lets) but the rules are quite strict about what qualifies as a holiday let.
In order to be a holiday let, the property has to be furnished to a level suitable for normal occupation and available to be let to the public for at least 140 days of each year. In addition, it also must be actually let for 70 days and not let to the same person for more than 31 consecutive days in a seven month period.
Real Rents
The lets themselves must be real rents, so you have to charge market holiday let rates, even if you let to friends!
With a holiday let you don’t have option of going for a wear and tear allowance, as you would with normal buy to let (longer term lets), but you are able to claim all repairs, agency and advertising fees, cleaning costs, heating and lighting costs, insurance and the costs of decoration and interest on any loan.
Capital allowances on the costs of furnishings, fixtures and fitting can be claimed too.
If the holiday let makes a loss you can offset that against your other income. (With longer term buy to lets you can only carry forward and set off against future rental profits)
However, the really neat thing about holiday lets is that capital gains tax is much gentler than with longer term lets.
Business Asset Taper Relief
Since holiday lets are treated as a business, the taper relief used is the Business Asset Taper Relief Rate. (Long term residential lets have to use the less advantageous non Business Asset Taper Relief)
Business Asset Taper Relief is nil for properties held for less than a year, but then 50% if held for between one and two years and 75% if held for two or more years.
This means if you make a £100,000 gain, once taper relief is applied, only £25,000 is taxable. Once a couple applies their annual CGT allowances of £17,600 (£8,800 each) the CGT would only be paid on £7,400.
Compare this with Non Business Asset Taper Relief on normal buy to lets where the maximum taper relief is 40% - and then only after 10 years!
Also, just as with most business type capital gains, with a holiday let you can roll over all the capital gains onto another UK holiday let property as long as the full amount of the sale proceeds are rolled over onto the next property. (However, you must do this either less than one year before or three years after the sale of the first property.)
A standard buy to let loan will not be suitable because they the lender will require the property is let to tenants.
Mortgage Options are Few
Looking around, the number of players in the holiday let mortgage market is quite limited.
The Scarborough Building Society is one of few with a product.
Brokers are the best bet for arranging holiday home insurance cover. The internet has a long list of brokers specialising in this area.
To achieve success in this market, you have to buy in the right area. English Country Cottages says their average occupancy rate is about 22 weeks a year, so you have to make your money in a short season.
Also, the Chancellor did not give those juicy business tax breaks for nothing. This is a really hard business and the workload is high.
Standards Please!
Guests will expect a high standard of cleanliness and service. And things must be fixed promptly, so if you are not there to do it, someone else must be.
If someone else does all this for you, expect to see 20-35% disappear in agency and admin fees.
In addition marketing costs will be high, at least at first, before you can rely on word of mouth and repeat visits.
You will have to join a good website and pay to get in the latest guides. Budget to spend from £500 per annum for effective marketing.
CHECK OUT OUR SITE LETTINGFOCUS.COM:
THE HOME PAGE OF THIS BLOG click here: Blog
THE HOME PAGE OF OUR MAIN SITE click here: LettingFocus Home Page
ONE TO ONE PRIVATE CONSULTING click here: Property Mentoring
NEXT SEMINAR AND NETWORKING EVENT for Landlords and Property Investors:
Next Property Investing Seminar and Networking Event
We have GREAT OFFERS on a range of products for landlords too; click here including landlords insurance, tenant referencing, tenancy agreements and more: Services and Products for Landlords
For general info on our SEMINARS AND CONSULTING click here: Property Seminars, Networking Evenings and Consulting
PAST CLIENT TESTIMONIALS from past customers – both commercial and private click here: Testimonials
BUY THE BOOK click here: Buy the Book at Amazon
ABOUT US
LettingFocus.com are the experts on landlord issues and I’m David Lawrenson, the author of “Successful Property Letting” – which has been the UK’s top selling property and buy to let book for the last 3 years.
We help landlords and property investors make money in property by coaching them in ways that work, that are ethical and which involve minimal risk.
I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased buy to let advice for property buyers and landlords both on a one to one mentoring and coaching basis as well as through occasional group seminars.
Property syndicates and property advice in the UK is still largely unregulated and what counts as “advice” is too often more about making the promoter money than giving useful information to the investor.
With no link to property firms, developers or bridging loan providers, at LettingFocus, we aim to give unbiased independent advice on where and what type of property to buy for investment, when to buy and how to buy property at a low price.
We also show you how to manage tenants properly and in ways that take up as little of your time as possible.
Finally, we advise companies such as banks, local authorities and social housing providers with their landlord or buy to let facing strategy.
To JOIN our Free QUARTERLY NEWSLETTER simply send an email to david@LettingFocus.com - Please note we WILL NOT send spam or sell our mailing list to advertisers!
IF YOU HAVE A SITE WHY NOT LINK TO THIS BLOG OR OUR WEBSITE?
Selling services to landlords and property investors and have a national coverage? You could be a partner, please get in touch!
Labels: Business Asset Taper Relief, Buy to let mortgage and holiday lets, furnished holiday lets, Holiday lets, holiday lettings, second homes
This entry was posted by lettingfocus, on
Tuesday, July 10, 2007.
