Is it time to invest in a holiday let?
It has been increasingly difficult for landlords in the buy to let sector in recent times, with many having to rethink their options. With tax breaks being withdrawn and yields that continue to fall, the outlook is not always good for property investors.
Is there another option?
Holiday lets can provide a suitable alternative to conventional buy to lets. One benefit is that they have tax breaks which are much more attractive.
Renting out properties for short holiday lets can produce up to three times the income of more traditional flat rentals.
Many landlords believe holiday lets are restricted to countryside retreats or seaside towns, but they can be located in any place where there is adequate demand for rentals on a short term basis. The most restrictive rules in buy to lets are not applicable to holiday lets.
Savings could be significant. For example, consider two identical properties generating £15,000.00 per year in rent. The landlord of the holiday let can utilise tax breaks and/or other savings in order to avoid paying any income tax for their property income. If this scenario were for a buy to let landlord, they would have to pay tax totalling thousands of pounds. From April 2020, buy to let interest charges for mortgages are not allowed to be offset completely against income pre-tax. A landlord will receive 20pc credit instead and this will be regardless of their particular tax band.
Additional rules for holiday lets
Landlords should be aware of additional rules to be considered. For example, landlords must furnish the homes. It is worth considering property inventory software and landlords may ask how much can property inventory software cost and whether it will be a viable investment. With all furnished lets, it is a good idea to utilise property inventory software wisely, and it should then pay for itself easily.
Holiday lets need to be available for let for at least 210 days per year and occupied for a minimum of 105 days by a tenant.
Lets are not allowed to be longer than 155 consecutive days. It is therefore imperative that landlords are able to source successive tenants willing to rent for a maximum of 6 months at any one time. Any void times between tenancies will reduce profits, as no rent will be received.