How do Holiday Home Investments Work?

How do Holiday Home Investments Work?

What is a Holiday Home?

A holiday home, or a furnished holiday let (FHL), is a property that is rented for commercial purposes and is considered as a high-yielding investment. Investors have been purchasing property and renting it out as a holiday home in order to take advantage of the current depreciation of the GBP after BREXIT, and subsequently the increase in tourists in the United Kingdom. With this Brexit-effect, the UK attracted a total spend of £23 billion in staycations during 2017 alone. The income itself generated from the holiday home property market was calculated to £3.1 billion in 2016, and is expected to rise by 23% by 2021. Evidently, the FHL industry has proven to have a growing demand and provide healthy returns to those investing. A reputable UK estate agency reported that, on average, a UK holiday home owner earns roughly £22,280 per annum – however this is not a restricted average, there is definitely room for higher returns depending on the property.

 

What qualifies as a Holiday Home?

In order for a property to qualify as a furnished holiday let, certain requirements must be fulfilled. For example, the property must be available for tenancy and advertised for 210 days per annum, and let for 105 days per year. However, in order for the days in which the property is occupied to be counted, it must be commercially let without any reductions to the price (even for friends and family). Moreover, the property must be rented out on a short-term basis of an occupancy of no more than 31 consecutive days.

 

What are the financial factors to consider?

Given that the property qualifies as a Furnished Holiday Let (FHL), holiday home owners are able to benefit from the tax advantages of these types of properties. If the property does not fulfill the requirements, all trades will be treated as a regular buy-to-let transaction, of which does not have the same tax advantages of a holiday home.

Business Rates Exemption

Furnished Holiday Lettings are exempt from council tax, property owners are offered 100% relief provided that the property is at a rateable value of less than £12,000.

Capital Allowances

Maintenance and management of the house, including furniture and fittings, can be offset against tax as capital allowances

Capital Gains

Holiday Home owners are entitled to claim entrepreneur’s business property relief from capital gains tax at 10% upon selling, on top of the rollover relief given that the capital is reinvested into another enterprise.

Mortgage Interest

Traditional buy-to-lets have a flat rate mortgage interest of 20%. However, FHL have the added advantage of the mortgage interest being deductible from the rental revenue and treated as a business cost. Additionally, mortgage interest for FHLs can be lower than traditional buy-to-let properties.

 

Invest with HyLife

HyLife has partnered with one of the United Kingdom’s premier operators of holiday resorts. The operator has a specialist teams to assist in the set up of the property, mortgage and ongoing letting. For more information get in touch!

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