Holiday Let vs Private Rental?
Discussion
I was wondering whether any PH'ers run holiday lets? We have a barn conversion that we will either stick tenants in or run as a holiday let.
Pros of a tenant to me are: certainty, they pay the household bills, less pressure to have everything perfect.
Pros of Holiday letting are: Money! But we have to pay cleaners, maintain the property to a very high standard, uncertainty of income.
After factoring in agency fees etc I think the holiday let route is still quite good, providing we get over 25 weeks let a year. But I'm wondering what the pitfalls might be?
Pros of a tenant to me are: certainty, they pay the household bills, less pressure to have everything perfect.
Pros of Holiday letting are: Money! But we have to pay cleaners, maintain the property to a very high standard, uncertainty of income.
After factoring in agency fees etc I think the holiday let route is still quite good, providing we get over 25 weeks let a year. But I'm wondering what the pitfalls might be?
Tax wise that's an interesting point Eric....I assume that's on the Holiday Lets favour the way George Osbourne has been going at BTL?
I have been half thinking of hiving the barn off to it's own Ltd Co, if it worked as a holiday let I was then thinking of building a couple of chalets ( planning permitting ) where we have nice views over to the Brecon Beacons. Should be permissable as farm diversification.
There's alot more money in stressed out Londoners needing a break than there is in sheep I reckon!
I have been half thinking of hiving the barn off to it's own Ltd Co, if it worked as a holiday let I was then thinking of building a couple of chalets ( planning permitting ) where we have nice views over to the Brecon Beacons. Should be permissable as farm diversification.
There's alot more money in stressed out Londoners needing a break than there is in sheep I reckon!
Timmy40 said:
Tax wise that's an interesting point Eric....I assume that's on the Holiday Lets favour the way George Osbourne has been going at BTL?
The reason why holiday lets have traditionally been treated differently is because they are a bit of a different animal compared to a rented out home. They are much more akin to to a hotel or bread and breakfast operation with similar types of costs and considerations.This means that, for tax purposes, they have been treated in a broadly similar way to how hotels and guest houses are taxed i.e. as trading operations. The restrictions on interest on other finance charges which come into effect on 6 April 2017 have been stated as being in respect of the letting of residential properties. Therefore, I would expect that a holiday let would NOT suffer from these new restrictions.
This doesn't help the o/p but can't a new holiday let be bought via a company and be run as a proper business, thus avoiding the 3% second home SDLT? Presuming you'd want to use it personally for a few weeks/weekends, I'd assume you'd just pay the company the going rate for that time of year.
Eric Mc said:
The regulations are supposed to stop people hiding ownership of a property in a limited company.
A holiday let is NOT a residential property (any more than hotel or a motel is).
A holiday let is NOT a residential property (any more than hotel or a motel is).
It's not just a tax issue either, planning are very hot on people thinking they can get permission for a holiday let and then once it's built just live in it as a house. The adivce I've had so far is that unless I can get more than 20 weeks a year of holiday let then private rental will be just as lucractive, it's then a balance between the hassle factor of holiday lets, versus that with the holiday let we would be able to use if for friends to come and stay in whenever it's not booked. Whereas with private tenants we lose any use of the place for ourselves.
I'm sort of inclined to rent it out for 6m to some tenants then have a go at holiday makers next year if we fancy it.
I've just put in a pre app to see if we could build 3 eco-chalets on the farm for tourism, they would be about 1/5th the cost/value of the Barn Coversion but yield a similar amount of income.
Eric Mc said:
The regulations are supposed to stop people hiding ownership of a property in a limited company.
A holiday let is NOT a residential property (any more than hotel or a motel is).
That's not what I asked and you are jumping to conclusions about presumed attempted evasion where there is no such intent. What is the treatment if the concept is a proper holiday lettings business? eg in an established holiday area, maybe even with a property that exists as an established holiday let.A holiday let is NOT a residential property (any more than hotel or a motel is).
Behemoth said:
This doesn't help the o/p but can't a new holiday let be bought via a company and be run as a proper business, thus avoiding the 3% second home SDLT? Presuming you'd want to use it personally for a few weeks/weekends, I'd assume you'd just pay the company the going rate for that time of year.
From an initial conversation with a large national holiday let agency that manage bookings and marketing for owners they want exclusivity between Easter-Oct however they specifically allow for 4 'owner' weeks use as standard during that period. So I deduce from that the use of it by the owners for at least a month peak season ( more if required ) is fine. Behemoth said:
Eric Mc said:
The regulations are supposed to stop people hiding ownership of a property in a limited company.
A holiday let is NOT a residential property (any more than hotel or a motel is).
That's not what I asked and you are jumping to conclusions about presumed attempted evasion where there is no such intent. What is the treatment if the concept is a proper holiday lettings business? eg in an established holiday area, maybe even with a property that exists as an established holiday let.A holiday let is NOT a residential property (any more than hotel or a motel is).
Are you trying to AVOID tax (legal - of course, so no accusations of anything against the law)?
Are you trying to ensure a better business vehicle?
Are you aware of the capital gains tax complications arising?
The 3% SDLT surcharge relates to RESIDENTIAL properties. A holiday let is not a residential property.
Timmy40 said:
From an initial conversation with a large national holiday let agency that manage bookings and marketing for owners they want exclusivity between Easter-Oct however they specifically allow for 4 'owner' weeks use as standard during that period. So I deduce from that the use of it by the owners for at least a month peak season ( more if required ) is fine.
Yes, I know the standard approach (btw I think you'd be foolish to turn away peak season income & should only really step into voids last minute). I also know about HMRC's treatment wrt minimum # days rented and minimum # days offered. But it's the SDLT aspect that isn't clear to me at the moment.Eric Mc said:
What are you trying to achieve by having the property owned and operated by a limited company?
Are you trying to AVOID tax (legal - of course, so no accusations of anything against the law)?
Are you trying to ensure a better business vehicle?
Are you aware of the capital gains tax complications arising?
The 3% SDLT surcharge relates to RESIDENTIAL properties. A holiday let is not a residential property.
yes, yes and yes. Thanks for your answer Eric Are you trying to AVOID tax (legal - of course, so no accusations of anything against the law)?
Are you trying to ensure a better business vehicle?
Are you aware of the capital gains tax complications arising?
The 3% SDLT surcharge relates to RESIDENTIAL properties. A holiday let is not a residential property.
This is what was in the proposed legislation which contradicts what I thought would be a logical exclusion from the new SDLT provisions. This will, of course, put commercial holiday home businesses at a commercial disadvantage to hotels etc.-
Furnished holiday lets
"The government proposes that properties bought as furnished holiday lets should be treated in the same way as all other residential properties – if the property is purchased as an additional property the higher rates will apply".
I haven't seen any update since the budget which contradicts this.
Placing a property in a limited company does NOT exclude it from the extra 3% SDLT.
Obviously, if a limited company owns ONLY one property you might think that the company will only pay normal SDLT and not the extra 3% surcharge. However, HMRC states that owning a property through a limited company or multiple companies does not work if the owners of the company/companies already own properties in their own name or through other limited companies elsewhere .
Furnished holiday lets
"The government proposes that properties bought as furnished holiday lets should be treated in the same way as all other residential properties – if the property is purchased as an additional property the higher rates will apply".
I haven't seen any update since the budget which contradicts this.
Placing a property in a limited company does NOT exclude it from the extra 3% SDLT.
Obviously, if a limited company owns ONLY one property you might think that the company will only pay normal SDLT and not the extra 3% surcharge. However, HMRC states that owning a property through a limited company or multiple companies does not work if the owners of the company/companies already own properties in their own name or through other limited companies elsewhere .
So what's the situaiton if you are buying a property that is also a business with muptiple properties on it. e.g. we put our farm on the market, the farm comes with Farmhouse, barn conversion, 3 holiday lets and land. Does the 3% levy apply? Or is it treated as one property subject only to SDLT at the standard rate?
Who knows.
The ink on the legislation is still wet. I think lots of farmers will have problems surrounding this as they often supplement their agricultural income with holiday lets of various sorts.
And how specific is the interpretation of "residential property" for this specific piece of legislation.
I think we would recognise a farmhouse as a residential property but what about - a converted barn, a park type home, a caravan site?
The ink on the legislation is still wet. I think lots of farmers will have problems surrounding this as they often supplement their agricultural income with holiday lets of various sorts.
And how specific is the interpretation of "residential property" for this specific piece of legislation.
I think we would recognise a farmhouse as a residential property but what about - a converted barn, a park type home, a caravan site?
Nice to know after years of Gordon Brown giving us the most complex tax system on the planet the Conservatives are now in power......and making it even worse.
I know from a planning perspective a barn conversion is never considered to be a residential property, and never has permitted development rights as a result, because it's a conversion of a commercial asset to residential use.
But as we know HMRCs new attitude seems to be "it's XYZ because we say it is, now pay up".
I won't be at all surprised if in the near future we see a new rule coming in to restrict the IHT treatment of farms to those earning over an arbitrary % ( e.g. 80% ) of their income from the farm as they know perfectly well most farmers now have to have a second of farm job to make it work.
I know from a planning perspective a barn conversion is never considered to be a residential property, and never has permitted development rights as a result, because it's a conversion of a commercial asset to residential use.
But as we know HMRCs new attitude seems to be "it's XYZ because we say it is, now pay up".
I won't be at all surprised if in the near future we see a new rule coming in to restrict the IHT treatment of farms to those earning over an arbitrary % ( e.g. 80% ) of their income from the farm as they know perfectly well most farmers now have to have a second of farm job to make it work.
I'm eyeing up the purchase of a holiday let (it's an existing let, though usage type is residential, so subject to council tax rather than bus rates). Here's some rough calcs to compare to tranditional BTL of similar cost.
HL, seaside location:
Purchase price £250k
Income (this is quite a pessamistic view) 8 weeks peak, 8 weeks mid, 8 weeks low = 18,800
Fully managed service @ 20% (would be 10% if we had own cleaner) - 3760
Council tax - 1600
Utilities - 1500
Phone + BB - 400
Insurance - 200
Elec check - 50
Profit (before repairs etc) = £11290pa
We have a BTL, which cost 208k but is now worth closer to 230, so will use as compaison. It's in a very popular residential neighbourhood, close to excellent schools etc:
Income (assume 11 months pa, though in demand so seems pessamistic based on recent occupancy) - 8745
Insurance - 200
Gas check - 50
Full management fee - 612
Profit (before repairs etc) = £7883
The holiday let does seem more lucrative. Also has the benefit that, if there's a free week / weekend, it would be of good use to my family (rather than the BTL which isn't especially useful!).
Buying through a ltd company which holds a BTL plus some office building, I have no idea what the ST will be if purchasing the HL, though would assume the company would pay the extra 3%.
Having stayed in the property which we're thinking of buying, there's a lot of stuff to consider buying to have it ready to let. Things like TVs, DVD players, DVDs, games for kids, stair gates, alarm clocks, pictures on the walls... the list is endless. Thankfully it would be sold with everything.
HL, seaside location:
Purchase price £250k
Income (this is quite a pessamistic view) 8 weeks peak, 8 weeks mid, 8 weeks low = 18,800
Fully managed service @ 20% (would be 10% if we had own cleaner) - 3760
Council tax - 1600
Utilities - 1500
Phone + BB - 400
Insurance - 200
Elec check - 50
Profit (before repairs etc) = £11290pa
We have a BTL, which cost 208k but is now worth closer to 230, so will use as compaison. It's in a very popular residential neighbourhood, close to excellent schools etc:
Income (assume 11 months pa, though in demand so seems pessamistic based on recent occupancy) - 8745
Insurance - 200
Gas check - 50
Full management fee - 612
Profit (before repairs etc) = £7883
The holiday let does seem more lucrative. Also has the benefit that, if there's a free week / weekend, it would be of good use to my family (rather than the BTL which isn't especially useful!).
Buying through a ltd company which holds a BTL plus some office building, I have no idea what the ST will be if purchasing the HL, though would assume the company would pay the extra 3%.
Having stayed in the property which we're thinking of buying, there's a lot of stuff to consider buying to have it ready to let. Things like TVs, DVD players, DVDs, games for kids, stair gates, alarm clocks, pictures on the walls... the list is endless. Thankfully it would be sold with everything.
onedsla said:
I'm eyeing up the purchase of a holiday let (it's an existing let, though usage type is residential, so subject to council tax rather than bus rates). Here's some rough calcs to compare to tranditional BTL of similar cost.
HL, seaside location:
Purchase price £250k
Income (this is quite a pessamistic view) 8 weeks peak, 8 weeks mid, 8 weeks low = 18,800
Fully managed service @ 20% (would be 10% if we had own cleaner) - 3760
Council tax - 1600
Utilities - 1500
Phone + BB - 400
Insurance - 200
Elec check - 50
Profit (before repairs etc) = £11290pa
We have a BTL, which cost 208k but is now worth closer to 230, so will use as compaison. It's in a very popular residential neighbourhood, close to excellent schools etc:
Income (assume 11 months pa, though in demand so seems pessamistic based on recent occupancy) - 8745
Insurance - 200
Gas check - 50
Full management fee - 612
Profit (before repairs etc) = £7883
The holiday let does seem more lucrative. Also has the benefit that, if there's a free week / weekend, it would be of good use to my family (rather than the BTL which isn't especially useful!).
Buying through a ltd company which holds a BTL plus some office building, I have no idea what the ST will be if purchasing the HL, though would assume the company would pay the extra 3%.
Having stayed in the property which we're thinking of buying, there's a lot of stuff to consider buying to have it ready to let. Things like TVs, DVD players, DVDs, games for kids, stair gates, alarm clocks, pictures on the walls... the list is endless. Thankfully it would be sold with everything.
Out of interest, why is having a (nearly) 50% occupancy pessimistic for the holiday let?HL, seaside location:
Purchase price £250k
Income (this is quite a pessamistic view) 8 weeks peak, 8 weeks mid, 8 weeks low = 18,800
Fully managed service @ 20% (would be 10% if we had own cleaner) - 3760
Council tax - 1600
Utilities - 1500
Phone + BB - 400
Insurance - 200
Elec check - 50
Profit (before repairs etc) = £11290pa
We have a BTL, which cost 208k but is now worth closer to 230, so will use as compaison. It's in a very popular residential neighbourhood, close to excellent schools etc:
Income (assume 11 months pa, though in demand so seems pessamistic based on recent occupancy) - 8745
Insurance - 200
Gas check - 50
Full management fee - 612
Profit (before repairs etc) = £7883
The holiday let does seem more lucrative. Also has the benefit that, if there's a free week / weekend, it would be of good use to my family (rather than the BTL which isn't especially useful!).
Buying through a ltd company which holds a BTL plus some office building, I have no idea what the ST will be if purchasing the HL, though would assume the company would pay the extra 3%.
Having stayed in the property which we're thinking of buying, there's a lot of stuff to consider buying to have it ready to let. Things like TVs, DVD players, DVDs, games for kids, stair gates, alarm clocks, pictures on the walls... the list is endless. Thankfully it would be sold with everything.
Obviously the holiday let is a better investment, however will the BTL give you a greater capital appreciation?
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