There are a number of benefits and considerations that your clients will need to be aware of when looking to finance a holiday let so West One, whose products are available via Brightstar, has created this handy checklist to discuss with clients.
Benefits
- The cost of furnishing a holiday rental can be deducted from the pre-tax profits.
- Self-catering accommodation may be subject to Business Rate property tax, which would allow the investor to claim small business rate relief, instead of paying council tax.
- If an investor decides to sell their property, they will be able to claim certain Capital Gains Tax reliefs including Entrepreneur’s Relief, Business Asset Rollover Relief and Gift Hold-Over Relief.
- Income generated from a holiday rental is classed as ‘relevant earnings’ which means you can make contributions towards your pension and reduce your income tax bill.
- Married couples can divide the profits from a furnished holiday let however they choose, regardless of the ownership split.
- There is the potential for higher profit margins as the daily and weekly charges for holiday lets are considerably higher than traditional buy-to-lets.
Considerations
- Certain councils have restrictions in place for short-term lets which may impact the ability for the owner to rent the property as a short-term let.
- The running costs for a holiday let can be higher, particularly if the management of the property is outsourced to a holiday operator, who will take a fee. It is also worth considering that wear and tear is likely to be higher with multiple occupants coming and going.
- Without the security of a tenancy contract that comes with a traditional buy-to-let, holiday lets can be vacant for long periods of time – particularly in low season.
- Utility bills and TV packages will need to be covered by the property owner at a holiday rental, while these would normally be covered by the tenant at a traditional buy-to-let.
Purchasing or refinancing a holiday let
For more information on financing a holiday let, please speak with the award-winning team of experts at Brightstar on 01277 508954, or email helpdesk@brightstarhub.co.uk
Generic information is contained within this article and each individual’s tax affairs are different, further advice should be sought from an accountant.
FOR INTERMEDIARIES ONLY.
