Why you should be looking at furnished holiday lets
The Daily Telegraph reported in June 2022 that “…residential Buy to let landlords could soon turn a loss as higher interest rates bite, while the Government’s buy-to-let tax crackdown further amplifies the pain of soaring mortgage costs.” This could make holiday let investments of more interest to new and existing property investors.
The residential buy-to-let market has experienced a major downturn in recent years, largely due to tax implications for landlords, prompting investors to seek alternative options. Landlords are now taxed on their revenue, rather than on the profit after mortgage costs. A further change introduced in 2016 prevents landlords from being able to reduce the income tax they pay on rental earnings by 10 per cent for ‘wear and tear’ to their property. Now, only the cost of replacing furniture or building work can be deducted. Add to this the slow-down in the growth of house prices amid the current cost of living crisis and the reasons for the decline of the residential buy-to let market becomes clear.
The Telegraph article of June 2022 explains that buy to let yields have hit a record low because house prices climbed more quickly than rents and that the increase in the Bank Rate to 1.25% will cause the average net profit of a new buy to let property to fall by 15%. Hamptons Estate Agents is quoted as saying: “It will only take the Bank Rate to reach 2pc before the average landlord on higher-rate tax would see their profit more than halve”. Additional source corroborate the barriers for residential landlords:
On the flip side qualifying, Furnished Holiday Lets can potentially achieve a tax-free rental income for up to four to eight years. There’s great news for savers too, as personal income, earned through a Furnished Holiday Let, can contribute to your annual pension allowance and the current market it looking to stand up to current pressures well:.
The UK Tourism & Staycation Economy
Benefit from favourable tax regulations
A furnished holiday let or FHL is a furnished property that is let for short periods. To qualify as a furnished holiday let (FHL) for tax purposes, your property must be available to let for at least 210 days a year and let commercially to the public for at least 105 days in the year. This does not include days you’re staying there or days that your property is let out to family and friends for free or at reduced rates. These criteria are all met though the Away Resorts investment buying option and can also be met using our Managed Letting Service, depending on how often you opt to use your holiday home yourself.
If you let properties that qualify as Furnished Holiday Lets, subject to certain criteria, you can claim in areas such as:
You are also entitled to plant and machinery capital allowances for items such as furniture, equipment, and fixtures as the profits count as earnings for pension purposes. A correctly supported claim for capital allowances can mean that a FHL will pay no tax on its rental profits for potentially 4- 8 years.
We advise you to approach a specialist tax advisor to ensure you can make the most of your investment purchase.
Away Resorts also offers a portfolio investment product with a fixed return of 7% over a 3 or 5 year fixed term on our boutique barns at Retallack Resort & Spa in beautiful Cornwall and a limited number of cottages at The Bay Colwell and The Lakes Rookley on the Isle of Wight. All investment options are subject to approval and terms and conditions apply.
Have a question about holiday home ownership? Please fill in the form below and one of our Holiday Home Ownership Advisors will be back in touch within 48 hours.Make an enquiry
*The Away investment product is available on selected properties at selected resorts and exclusively to qualifying investors, terms and conditions apply.
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