Five reasons why you should think about letting property as a furnished holiday accommodation.
1. Become part of a booming industry
The demand for self catering holiday accommodation has continued to grow, despite the current economy and letting your property in this way is a great way to generate new revenue streams and to get experience in running your own micro business, dealing with the general public and learning about business administration and decision making.
2. Maximise the return on your property investment
A professionally set up and well run FHL property can help you achieve much larger returns than might otherwise be achieved from residential letting.
In both types of letting, the returns that can be achieved will be governed by many factors, including the location, size and quality of accommodation, but weekly rents from holiday makers can be as much as 4 times and more (especially during the peak letting season) than can be achieved on residential lettings, even after all operating costs have been paid.
Because letting as furnished holiday accommodation is a competitive business that is subject to market forces, qualitative decisions on how you set the property up and services provided can greatly enhance your returns.
3. You can continue to enjoy and have access to your property
For many people, their second property is often used as a holiday home and letting your property as furnished holiday accommodation means that you will continue to be able to use the property as such if it is not otherwise let to holiday makers.
Your property is a very valuable asset and because holiday lettings are very short term, you are able to visit the property on a regular basis to ensure that it is properly maintained.
Where property is let on a residential basis, this is usually under a lease agreement, whereby the tenant is entitled to quiet occupation which means that for the term of the lease, you will not have access to the property (without very good reason). Unfortunately, not all tenants will treat your property with the respect it deserves and untold damage may be caused during a bad tenancy and it is very difficult to evict and recover damages in such cases.
In our experience holiday makers are mindful of enjoying themselves rather than abusing their accommodation and very appreciative of quality and services provided to them… and of course their time in your property is limited by the length of their booking.
4. There are tax advantages
So long as your FHL property is operated on a commercial basis (and passes certain letting criteria), you could benefit from a number of tax advantages because it will be treated as a trading business for tax purposes.
The principal benefits are:
Being able to claim tax allowances on the initial cost of fitting out and furnishing the property… this could even include the installation of a swimming pool! Allowances for such expenditure cannot be claimed where the letting is residential and this can make a significant difference to the tax ultimately payable.
Profits and losses each year can be shared by joint owners in such proportions as they choose (irrespective of beneficial ownership) so that tax liabilities can be minimised.
The property itself qualifies to be treated as a business for the purposes of Capital Gains Tax which gives rise to number of valuable tax saving opportunities in the form of rollover reliefs and Entrepreneurial Relief (which means gains may be taxed at only 10%, rather than at 18% or 28%).
A qualifying furnished holiday let property may also be treated as a business for the purposes of Inheritance Tax Business Property Relief – this is a very valuable relief that could result in many thousands of pounds being saved by the beneficiaries.
The taxation of Furnished Holiday Let property is a specialised area and it is imperative that owners take professional advice in all tax matters, and particularly with regards to Inheritance Tax Business Property Relief which is a particularly contentious area.
5. An alternative pension provision
Many people are wary (with good reason) of paying into pension schemes over which they have no control and are subject to the turbulence of the stock exchange and world financial markets. Investing in property is a great alternative as a medium to long range investment strategy linked to providing for your retirement… whilst it is very true that the value of property can go down as well as up, in the longer term, the general trend has historically been upwards.
There are two ways that your property can be used to provide for your pension:
Continue to let the property and take the profit as your pension income. This could provide an income for life and so long as the property qualified for Business Property Relief, it could be bequeathed to your dependants free of Inheritance Tax.
The property could be sold and the capital either invested elsewhere or indeed, be used to supplement your income for a number of years. You would benefit from lower rates of Capital Gains Tax on the sale or defer the tax indefinitely by re-investing in qualifying business assets (so long as it met the qualifying criteria) however cash or other investments left to children would not ordinarily benefit from Inheritance Tax Business Property Relief.