Is holiday let property a good investment?

The profit potential and tax advantages of a brick-and-mortar staycation investment

Buy-to-let property investors have been put under some pressure over the last couple of years. The UK government has seemed hell-bent on making life difficult, with regulatory and property tax changes denting income potential. Such changes include a reduction in mortgage interest tax relief and the 3% stamp duty surcharge on property investment. Despite such changes, property remains a solid investment in the UK.

In this article, we discuss if holiday lets are a good investment for investors who want to maximise the potential of investing in UK property.

What is a holiday let?

To be considered as a furnished holiday let, your UK investment property must:

  • Be furnished
  • Be available to let as holiday accommodation for at least 210 days of the year
  • Be let as holiday accommodation for at least 105 days of the year

If you let a property out for more than 31 days to a single holiday tenant, it will not qualify as a holiday let.

The profit potential of holiday lets

A well-maintained holiday let property has the potential to increase in value, as other properties in the UK. It also has the potential to create very attractive letting income, though you will need to factor in the cost of managing and running the property as a holiday let. Many holiday let property investors have their properties managed for them.

Holiday lets can command several times the income that long-term buy-to-let property might yield. Holidaymakers are happy to pay a premium price for the right property in the right location to take them away from the humdrum of their daily routine.

The tax advantages of holiday let property

There are several tax advantages available when you invest in a holiday let property.

For example, HMRC treat this type of property investment as if it were a business – so mortgage payments can be fully offset against letting income. Of course, your holiday tenants won’t be paying utility bills or council tax, but these also count as costs of running a holiday let property. Like your mortgage payments, they can be offset against your letting income.

The tax advantages don’t stop there. Other ways your holiday let property is tax advantageous include:

  • Capital allowances are available on spending on furniture, fixtures and fittings, and equipment such as white goods
  • If you sell to buy another holiday let property, you can defer the capital gain until you sell the second property
  • Profits can be apportioned to maximise the tax positions of spouses, irrespective of the share owned by each
  • Because a holiday let property is classed as a business, profits are classed as ‘relevant earnings’ for pension purposes – allowing you to contribute more to your pension

You need to market your holiday let property

As with any investment property, you’ll only get it let if you market it. The difference between ordinary buy-to-let investments and holiday lets is that holiday lets must be marketed constantly. A popular method of doing this is to advertise on Airbnb. You’ll need to enter a written description and add photos, but Airbnb has an enormous reach. For each booking you’ll be charged around 4% or 5% of the fee you receive.

Other holiday rental companies are also available, and local agencies may receive a good volume of enquiries without the competition for bookings suffered on Airbnb. However, for this specialist access you are likely to be charged as much as 30% commission on letting income received.

You may also set up your own website, producing blogs and information on the local area as well as your holiday let property. Collecting the email addresses of holidaymakers staying in your property allows you to build a list of people to send newsletters and emails with special offers.

If there is a secret to marketing your property – other than being prepared to work hard – it is probably to use as many marketing strategies and avenues as possible, and ensure that your property is marketed online.

To learn more about the advantages and benefits of holiday let property investment, contact Gladfish today on +44 207 923 6100. We’ll be happy to discuss how a staycation investment might fit in with an existing portfolio or be the investment to help you achieve your lifestyle goals.

Live with passion

Brett Alegre-Wood

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About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Gladfish. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids.

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