The attractions of Holiday Lets

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In the absence of viable alternatives, with ultra low interest rates and soaring property asset prices, investment in property has become a phenomenon of 21st century Britain and holiday lets, holiday homes and holiday letting businesses are no exception.

Tax advantages  

In addition, there are some valuable tax advantages with holiday lets over buy-to-let properties. For example, capital gains tax on profits when you sell is lower with holiday lets and as it’s a business you can claim more expenses from your rent every year to reduce income tax.

Tax advantages like these can be a real boost when you see that some properties have achieved 25% increases in the first decade of the 21st century and this has continued.

Don’t think that your holiday cottage need be beside the sea: many of the tourist hotspots and Heritage Trail cities such as York, Stratford, Bath and Edinburgh can attract very good rents in the high season, and in some cases all year round, enabling you to easily cover mortgage costs.

City properties offer a safer year-round bet as it’s easier to continuously attract occupants off season, and you can always take advantage of the accommodation yourself, if you want to, as an added bonus. However, there are restrictions to “own use” in the tax rules – see below.

Tax Incentives for a Holiday Letting Business

Note, these rules can change – always check the latest rules on the valuable tax advantages

Holiday lettings is recognised as a business (generating earned income) by HM Revenue & Customs, unlike other forms of property letting which HMRC class as investment income (unearned income)

There are some valuable tax incentives for letting your property as a holiday home, but there are some exacting HMRC rules which you must follow:

– Your accommodation must be available for letting to the public for at least 210 days of the year and actual letting must be at least 105 days.

– Any one occupier (or group) cannot stay for more than 31 days in any period of seven months, but they can for the remaining five months.

– You cannot claim the tax incentives when you use the accommodation yourself, or when the property is not available for letting.

– The property must be fully furnished.

– The lettings must be at full market rent, not a peppercorn rent for friends and relatives.

– Your rental income is subject to income tax, but ALL expenses are allowable.

Allowable Expenses against Holiday Lettings Business Income

• Repairs and maintenance
• Decorating
• Heating & lighting
• Legal and letting agent’s fees
• Management fees and cleaning costs
• Insurance
• Mortgage interest payments

Losses & Tax Advantages – Holiday Lettings Businesses

– In addition, if the business makes a loss, which it is likely to do in the early years, you can offset this against any other income you may have from any other source and thereby reduce your overall tax bill.

– Married couples can maximise tax allowances by having the property in the name of the lowest earner. This is particularly advantageous if the lowest earner is in the lower rate tax band and the higher earner is in the higher band.

– When you sell you holiday letting you will be subject to capital gains tax as you would if you sold a buy-to-let property, BUT at a more advantageous.

– You can avoid paying capital gains tax altogether if you invest the proceeds of your sale in another holiday letting property within 3 years – this is known as roll-over relief.

– Roll-over relief can also be used to avoid paying capital gains tax on sales of other types of businesses, where the proceeds are invested into a Holiday Lettings Business.

Your income and expenses for your holiday let business must be declared to HMRC on your annual self assessment tax return due any time from 31 October through to 31 January.

Mortgages for Holiday Homes and Lettings

One way to finance your holiday let is to increase the mortgage on your main residence.

Borrowing against your own home may mean you can buy a second home outright, or at least put down a substantial deposit.

Alternatively, you may want to buy an established holiday letting business from the owner which may include a portfolio of holiday cottages or town houses. Business finance is available from the banks.

Insurance for Holiday Homes and Lettings

In these days of higher risks and a litigious public, adequate insurance cover is vital. The types of cover you need to consider are:

• Buildings cover – your mortgage company will insist on this
• Contents cover – your own contents should be adequately covered, whilst your guests should cover their own contents and accidental damage to your property.
• Public liability – covers you for civil actions brought by guests who may sustain injury on your property.
• Employee liability – you are likely to employ casual labour in the process of running your small business and this cover is a legal requirement.
• Loss of rental income cover – this can be had for a small percentage of the annual rental income.
• Cancellation insurance – in case guests let you down.
• Personal accident insurance – in case you are incapacitated at critical times.
• Motor insurance for business use – you are likely to use you vehicle for the holiday letting business.

Holiday Letting – Bookings Scams

There have been many instances of holiday makers falling for bookings scams, but there have also been several instances of bookings scams on landlords reported recently. The aim of these is usually for the person booking the holiday to obtain your bank details, or sends a dud cheque / money order for more than the actual booking, then asks for a refund BEFORE the cheque clears. Always make sure the funds are in your bank before giving refunds and NEVER disclose you bank details.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – The attractions of Holiday Lets | LandlordZONE.

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Buy-to-let acquisitions rises in landlords over 60 following re-opening of housing market

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The number of buy-to-let acquisitions made by landlords nearing retirement age increased by more than half following the re-opening of the housing market – more than any other age bracket.

There was a 52% increase in buy-to-let purchases made by landlords aged between 60 and 64 in the 12 months to the end of June 2021 compared to the same period the previous year, according to Paragon Bank. However, as a proportion of the overall market, this age bracket remained the second smallest at 5% of buy-to-let purchases.

Distinct spike

MD Richard Rowntree says the distinct spike could have been prompted by low returns from savings and stock market volatility as older investors looked to boost retirement income. “The pandemic may have also led to an increase in people around this age deciding to either take redundancy or early retirement, which would have given them potential access to a lump sum of money to invest, or they are simply experienced landlords who took advantage of the stamp duty holiday to lower their purchasing costs,” says Rowntree. “Of course, sadly, inheritance can also result in a one-off cash boost.”

Encouraging

Landlords aged between 40 and 44 recorded the second highest percentage increase at 49%, while this group also saw the greatest increase as a proportion of overall purchases, rising from 15.2% of the market in the year to the end of June 2020 to 16% this year. The third highest increase was among 55 to 59-year-olds (45%), while over 65s recorded the smallest increase at 26%.

Rowntree adds: “It was also encouraging to see the majority of purchases in terms of absolute numbers being made by those aged between 35 and 50. This suggests that there’s a strong pipeline of younger landlords growing portfolios.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Buy-to-let acquisitions rises in landlords over 60 following re-opening of housing market | LandlordZONE.

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Rogue landlord found guilty and fined for refusing to provide bins

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A rogue landlord who didn’t provide bins for his tenants, leading to bags of rubbish being dumped next to a river, has been fined. 

Roger Howarth, of St Marys Street, Wallingford, was rumbled after fly-tipped waste on Park Road Bridge by the River Medlock was linked to a property he owned in November 2019. Environmental enforcement officers found evidence in a large number of bin bags and traced it to the house in Hollins Road, which had no waste bins.

Dangerous

Howarth – who is registered under Oldham Council’s selective licensing scheme – was told to order the tenants new ones. During the visit it was also discovered that the electric meter was dangerous and needed to be replaced, however, a follow-up visit found the bins hadn’t been ordered and waste was still piled up in the back yard, while the electric meter had also not been replaced. Officers had to resolve the issue with the energy supplier. A third visit discovered the waste situation had still not changed.

Howarth was found guilty at Manchester Magistrates Court of breaching the Housing Act by not complying with selective licence conditions. The 68-year-old was fined £1,000, with a £100 victim support, plus costs of £1,575 were awarded to the council.

Good result

Hannah Roberts, cabinet member for housing, says: “This prosecution is a good result and is down to the hard work of officers who followed up a report of fly tipping and have made a sub-standard home safe. It is much more expensive to lose in court than to be a decent landlord.”

A consultation on extending Oldham’s selective licensing scheme finished earlier this year and the outcome is expected soon.

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‘Later Life’ landlords swooping in post lockdown

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The number of buy-to-let acquisitions made by later life landlords nearing retirement age increased by more than half following the re-opening of the housing market, more than any other age bracket, Paragon Bank analysis has revealed.

There was a 52% increase in the number of buy-to-let house purchases made by landlords aged between 60 and 64 in the 12 months to the end of June 2021 compared to the same period the year before.

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