Buy-to-let investors, punch-drunk by the triple whammy of stamp duty hikes, taxation of loan interest, and a proposed ban on tenant fees, are struggling to find ways to avoid the punitive changes – but Quay Holidays is confident it has the answer. Says managing partner, Helen Challis, “the Chancellor really has it in for buy-to-let investors right now, and some have had enough. There is widespread speculation that many will be forced to sell up as the changes take effect, but thankfully there is an alternative – holiday letting.”
Residential investment is just that – an investment, but since furnished holiday letting is more intensive it is classed as a trade for tax purposes, and that has significant advantages. For starters, the withdrawal of tax relief on mortgage interest doesn’t apply to holiday letting. By 2020, buy-to-let investors with large loans are likely to find that the absence of tax relief on interest means their ‘investment’ will actually be losing them money. By contrast, furnished holiday-let investors are unaffected. They can also benefit from a range of valuable allowances and reliefs. Owners who want to use the property themselves can also do so, although it won’t count towards the occupation requirements.”
To qualify as a Furnished Holiday Letting (FHL), a property must be;
• Available and furnished for holiday letting with a view to making a profit for at least 210 days in every 12 months.
• Actually let for 105 days, for durations not exceeding 31 days.
What are the benefits?
• Mortgage interest charges can be fully off-set against income.
• Profits from a FHL count towards your relevant earnings for pension contributions.
• You can claim 100% Capital Allowances against a range of expenditures, including fixtures and fittings, white goods and furniture.
• Capital Gains Tax on subsequent sale could be eligible for Entrepreneurs’ Relief, meaning you pay only 10% tax on your gain. Alternatively, if you invest in a further, higher value FHL you could defer the chargeable gain through roll-over relief.
• Being a trade, FHL’s are usually eligible for business rates, rather than council tax, and small business reliefs could reduce your outgoing to zero.
• There may well be Business Property Relief on Inheritance Tax, provided HMRC are satisfied that you are (or were!) operating a business.
• Losses in any one year can be set off against a FHL profit in a subsequent year, although not against other types of profits.
What are the pitfalls?
• Record keeping is important – if HMRC come knocking, you will need to prove that your FHL is a genuine business, and that you have adhered to the timescales.
• Income is variable – it may take a while to build the business, and peak summer will yield bigger profits than the low and shoulder seasons, so cash flow needs to cover the leaner periods.
• Some leasehold properties, and many mortgage providers, may not permit holiday lettings in the property. Always check first. There are alternative mortgage providers, but if your lease forbids it, holiday letting may not be possible.
• Income is substantially higher, but so are the costs. It really is a business – and somebody has to do the marketing, booking, cleaning, and provisioning, but that’s where Quay Holidays comes in!
Ten Years in Furnished Holiday Letting
Established for 10 years, Quay Holidays’ knowledge and experience in holiday letting gives clients a huge advantage. Helen recognised from the outset that most other agencies offered a booking-only service, but since the South Coast is popular with second home owners who often live many miles away, she was determined to offer a high-quality, comprehensive service. To achieve that, Helen maintains a directly-employed team of cleaners, maintenance staff and managers. “Many of our team have been with us for years – they know how we operate, and the standards we expect. They have tremendous dedication to the job, and that is reflected in the many glowing testimonials from repeat guests.”
Income and occupancy
Holiday letting typically delivers peak season income three times higher than a long-term residential letting but before a landlord gets too carried away, Helen reminds them that there are higher costs, too.
The landlord of a FHL will be responsible for all the regular bills, plus the charges for welcome packs, linen hire, cleaning and letting fees. But Quay Holidays’ portfolio achieves annual occupancy levels around 70%, which surprises owners more used to the 40-50% achieved by holiday properties in rural locations. As Helen points out, “Poole and Bournemouth are popular year-round. We’re just two hours from London, and we offer flexible breaks from just 2 nights. We have stunning countryside on our doorstep, a beautiful harbour – and some excellent bars and restaurants! Quay also has strong links with local big businesses and many of their visitors prefer the space and facilities of a comprehensively-equipped apartment over a small hotel room.
Perceptions are changing
English holiday-lets used to conjure up images of formica kitchens, swirly-patterned carpets, antimacassars and those little china ornaments that every child dreamt of hurling from a top-floor window. The modern reality could not be more different. Today, holiday lets offer a genuine home-from-home, with all mod-cons – flat-screen TV’s, Bluetooth connectivity and wi-fi are becoming the norm. The old perception that holiday properties were usually mistreated by their guests also doesn’t hold, says Helen Challis. “Guests respect smart, attractively furnished and well-maintained properties. We still take a security deposit, just in case, but instances of malicious damage are almost non-existent”.
No obligation advice and appraisal
If you are an existing buy-to-let investor worried by the imminent tax changes, or a second home owner who wants to make their holiday home earn its keep, Helen Challis is happy to discuss the options with you. She can even furnish and equip a property to an agreed budget, if you lack the time to do it yourself. “With the tax changes due to take effect from April there is no time to lose, and with the current weakness in the Pound attracting foreign holidaymakers and staycationers alike, this summer looks set to be another bumper year.
Helen and her team can be contacted 7-days a week on 01202 683333 or by email to email@example.com
t. 01202 683333
a. Quay Holidays LLP, Orchard Plaza, 41 High Street, Poole, Dorset BH15 1EG