Holiday Home Investments - Great Yields and Tax Breaks
All of our current UK holiday home investments can be seen here.
In today's search by investors for higher yields to give enough
rental income to make a profit after higher mortgage costs everyone should
review UK holiday homes as a business backed property investment. In addition it offers many investors the chance for 45% less capital gains tax than regular property investment (or even 0% tax in the right circumstances).
People have run holiday homes as a business and as a
part of their property investments for decades and they have generally been very profitable
but what are
the pluses
and minuses of UK holiday home ownership ?
Well firstly yield or rental income as a percentage of the property price. Holiday lets can earn you as much income in a week as the property could fetch in a month if let on a 6 month AST. One common mistake people make is assuming that the rent per week/month is the same for both types of let and they rightly assume that there will be voids between holiday weeks, particularly out of season. Therefore they deduce that earnings will be reasonable in the tourist period but the voids will be bigger than for buy-to-let. Wrong. The good news is that the weeks that do let, if the property is managed well and is purchased is in a good tourist area, will produce greater annual income than a buy-to-let rental could have achieved even though the property may be vacant for much longer than a normal buy-to-let void.
For example a one bed apartment may rent for £400 a week in the Cotswolds to holiday makers but may only achieve £450 a month if let to a local under a buy-to-let arrangement on a 6 month AST. This means that if you rent the property for 13 weeks you have near enough the same gross income. With the buy-to-let you may see around 30% loss of income due to management, voids cost etc whilst with the holiday home let you would again see around 30% reduction in the rent received due to the higher management, cleaning and changeover costs. Therefore you can see a property in a tourist hot-spot achieving 25 weeks rental as being very profitable and it isn’t therefore surprising that some UK lets that are well run can achieve an 8-10% gross yield on purchase price compared to around 5% for many buy to lets. One investor we have known for many years has properties in the Lake District achieving 40-50 weeks a year due to it being an all year round destination ! But then you pay in capital values pro-rata for the increased rental potential.
Secondly the tax situation is great with professionally run
furnished holiday homes - this follows a full review in April 2008. Capital Gains tax is now a flat 18% for all types of investment including buy to let, commercial property, shares etc. However UK furnished holiday homes are classed as a commercial business
asset if let professionally (available for public rental for 140 days a year
min and lettings of 7 weeks a year minimum and let at market rent and fully
furnished) and attract the special 10% entrepreneurs' tax rate - this takes the standard 18% capital gains tax rate down to just 10% on the first £1 million of profit made as an entrepreneur by selling a business, furnished holiday rental or business premises used for occupation by your business. This means that even if you are on PAYE all of your working life and have never owned a business you should be able to make up to £1 million of capital gains selling furnished holiday rental property in the future and pay 45% tax than you would as a normal buy-to-let property investor paying 18% tax. (http://www.hmrc.gov.uk/cgt/disposal.htm)
Thirdly holiday home investments can be hands-off if you give
the property to a holiday company to fully manage. Sure they will charge you
for this service and 30%-45% of the gross rental is typical of what you can expect to
pay but you won't have to worry about marketing, cleaners and maintenance day to day.
Finally you can easily use your new holiday home investment for personal breaks on off-weeks
and in gaps between paying visitors without affecting your yield - a nice bonus.
Analysts predict that holiday home prices in the most exclusive seaside resorts are set to rise at more than double the UK average this year amid strong demand from City professionals. Read more in the Financial Times article.
Our holiday property investment solutions
include Rental Solutions™, our fully packaged management and
letting solution to make the investment hands-off, making holiday property
investment easy. You don't see many high yield
and
low deposit
property investments
so we can strongly recommend this type of property investment.
We source managed holiday home property for sale to our clients continuously in all of the main tourist hotspots including :
- Cornwall
- Devon
- Cotswolds
- Lake District
- Derbyshire / Peak District
- North Wales
- Norfolk Broads
- Yorkshire Coast
All of our current UK holiday home investments can be seen here.
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