As part of our series investigating the Great British Staycation, we’ve looked at the reasons behind the rising popularity of remaining in the UK for holidays and the pros and cons to purchasing a holiday let rental.
The Rise of the Great British Staycation.
While the pandemic may have accelerated the rise of staycations in the UK, there are a number of other factors at play that suggest the boom in staycations are here to stay!
Covid-19
One of the most obvious drivers for the staycation boom are the travel restrictions implemented because of COVID-19. The combination of frequent changes to the Government’s traffic light list, the need to quarantine, purchase expensive PCR tests and fears of new variants has seen many Brits opt to remain in the UK.
Brexit
A drop in the value of sterling since the Brexit vote in 2016, has meant that our spending power in Europe has taken a hit! In addition, longer queues at passport control and stays in the Schengen limited to 90 days per every 180 has put many Brits off.
Sustainable Tourism
Increasing awareness of climate change has resulted in a growing number of holidaymakers choosing to reduce their carbon footprint by avoiding air travel and remaining in the UK for their holidays.
Changing Lifestyles and Values
Multi-generational or ‘3G’ holidays have grown in popularity as more people value time spent with their families.
It has been estimated that 3.2 million households have welcomed a new pet since the start of the pandemic, meaning many Brits are looking for pet-friendly accommodation so their furry friend can join the vacation.
An increase in remote working has seen a number of people choosing to work remotely away from home, perhaps in a rural location or seaside resort.
Before investing in a holiday let are a number of factors that potential investors need to consider.
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.
Obtaining a mortgage for a holiday let
At West One, our specialist buy-to-let product range is available to amateur and professional landlords looking to finance complex transactions including Holiday Lets.
Key features of our Holiday Let mortgages:
- We lend to first time landlords with no holiday letting experience.
- Available to individuals, limited companies, and ex-pats.
- No minimum income.
- We can accommodate short term lets and serviced accommodation (Airbnb) which means the property does not have to be in a typical holiday destination.
- Holiday lets are assessed on an AST rental basis.
- The property must be suitable for standard AST rental.
- There must be no restrictive covenants relating to holiday letting (Seasonal restrictions, holiday let usage only).
- We wouldn’t lend on a holiday let complex or in an area predominantly holiday let property due to resale potential being limited.
If you have a client looking to purchase or remortgage a holiday buy-to-let, please contact your BDM or the broker support team on 0333 123 4556 or email btlbrokersupport@westoneloans.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.