Swapping from traditional rental property investment to a holiday let can pay off
The government’s decision to phase out mortgage interest tax relief on buy-to-let homes rented to tenants is just one of the reasons why landlords and would-be property investors have switched their attention to more tax-efficient furnished holiday lets.Before April 2017, owners of standard buy-to-lets could offset all mortgage interest payments against tax. From April this year, the death knell will be sounded for HMRC’s old, more generous system and it will be replaced by a flat 20 per cent reduction to the entire amount of mortgage interest paid.Furnished holiday lets are classed as a business and are still eligible for the full mortgage interest tax relief.Other fiscal advantages of FHLs include being able to offset some equipment and furnishing costs against income.When it comes to selling, holiday let owners can also claim Capital Gains Tax reliefs for traders, including Entrepreneurs’ Relief which reduces the rate of CGT from 18 per cent or 28 per cent to 10 per cent on the first £10 million of lifetime gains.To qualify as a holiday let, the property must be available for rent as furnished holiday accommodation for at least 210 days in the year and you must let it for at least 105 days per annum. You cannot count longer-term lets of more than 31 days or the days you stay in it yourself.
It paid off for Vicky
After 28 years as a nurse, Vicky Kiernan, 52, decided to retire and try her hand at holiday letting after a small cottage opposite her own home in Hudswell, near Richmond, came up for sale.Having previously owned several conventional buy-to-lets, Vicky has experienced the pros and cons of both forms of property investment.“The benefit of a holiday let is that it is better financially compared to a normal buy-to-let. However, I think it requires a much bigger commitment,” she says. “You have to make sure a holiday let is well maintained and up-to-date. The furnishing and decor have to be really good and cleanliness is really important.”Many holiday let owners leave their properties in the hands of agents and rely on them to find bookings, hire cleaners and organise repairs and maintenance, but Vicky is hands-on.She uses Sykes Holiday Cottages to market her property as the company has a high profile and an extensive reach but she does the handovers, cleaning and paperwork herself.“I class the holiday let as my job now and it takes up about two and half days a week because I do a lot of short breaks, which are more labour intensive but more lucrative than week-long stays,” she says.After buying Blacksmith’s Cottage, she spent £50.000 of her savings on renovating the property and it is now a cosy one-bedroom retreat.Vicky’s warm welcome, home bakes and local knowledge are part of the reason why the cottage is let almost all year round but there are other important factors.Size is one. One-bedroom properties are quite rare. Location is another. Hudswell was Yorkshire village of the year 2019 and has a great local pub. A dedicated parking space is also a selling point but one of the biggest draws is that Vicky accepts dogs.
Barking up the right tree
“I’ve got a dog myself so I know it can be difficult to find places that accept them. Our local pub is also dog-friendly,” says Vicky, who charges from £250 to £500 per week.While the set-up costs of a furnished holiday let are more than a regular buy-to-let, Vicky says the tax benefits are greater and the income is 20 per cent higher.“Taking the leap and investing my savings into Blacksmith’s Cottage was a nerve-racking experience, but it has really paid off. Holiday letting has changed my life for the better. It allows me to focus on my family while generating income during my retirement, I also love meeting guests and some of the regulars have become friends.”While she invested in a website for the cottage, most of the bookings come via Sykes, which also helped with advice.“Sykes helped us navigate the process, offering invaluable advice so I haven’t felt alone. One of its consultants visited the cottage pre and post renovation and helped me set realistic expectations for the property and how much I could earn letting it out.”*Blacksmith’s Cottage can be viewed at www.sykescottages.co.uk/cottage/Yorkshire-Dales-North-Hudswell/Blacksmiths-Cottage
Holiday Letting Tips
*Avoid areas saturated with holiday lets. There is also an ethical point to take into account. Too many holiday homes can destroy communities and push up property prices so that local people who work in the area are unable to buy or even rent a home.*Choose your holiday letting agent carefully. Keeping a property pristine is vital, as is good service.*Hot tubs are a selling point, as are dog-friendly properties.*Using an accountant to assess your tax. This should save you time, effort and money.