The holiday rental market in this country looks set for another busy summer as the weak pound persuades millions to opt for a staycation.
The fall in the UK pound since the Brexit vote three years also means Britons get less for their money abroad.
Meanwhile, more tourists than ever before are visiting the UK. VisitBritain figures show that 2018 was a good year for inbound tourism to the UK, with spending by overseas visitors to the UK reaching almost £27bn.
The strength of the UK tourist industry is paying dividends for holiday property owners, according to Bournemouth-based holiday letting agency, Bournecoast Holiday Agents, which reports that holiday lets are on the rise.
It has been known for a long time that owning a holiday let can be very advantageous in the holiday letting industry. Not only can it provide a potentially lucrative additional income for buy-to-let landlords, but it also offers certain tax advantages to holiday let owners.
There are specific requirements a property needs to meet in order to be classed as a furnished holiday let, such as its availability, actual bookings and level of furnishings.
Capital allowances can be claimed on a furnished holiday let property. This means the cost of kitting out a holiday property to a luxury standard (and in return, increasing the potential rental income) can be deducted from pre-tax profits. This is not an option available for long-term rental properties.
Income generated from a furnished holiday let property is classed as ‘relevant earnings’ which means a landlord can also make tax-advantaged pension contributions.
If the landlord should come to sell the furnished holiday let property, they may be able to claim certain Capital Gains Tax reliefs. These are unavailable to long-term rental properties and include Entrepreneur’s Relief, Roll-over Relief and Hold-over relief.
If a landlord shares the ownership of the furnished holiday let with their husband or wife, profits can be flexibly distributed between them both for tax purposes.
With long-term rental properties, profits would be distributed according to the official ownership split (e.g. if they owned 50% of the property, they would share 50% of the profits). With a FHL property, they can portion the profit however they decide.
A self-catering property which is available for short-term lettings for more than 140 days in any given year, is subject to Business Rate property tax. Since all furnished holiday let properties must be available to let for a minimum of 210 days, they fall into this category. However, this isn’t necessarily bad news as the landlord can claim Small Business Rate Relief, which can be up to 100%, dependent on what area you are in.
Des Simmons, Bournecoast’s managing director, said: “The holiday let market has gained considerable momentum over the past year, as evidenced by the growing number of lenders now offering mortgages suitable for this type of investment.”
Phil Wadham, director of Elite Financial, added that “the range of products for holiday letting is improving and more borrowers are thinking it’s a market to look at.”