Tax For Furnished Holiday Lets | Expert Advice from PFK Francis Clark
If you are looking for important information about holiday homes and tax, we’ve teamed up with Steve York, Tax...
by Janine de Lange / Owner
Starting a holiday let can be a profitable and rewarding venture. But in order to make it successful and generate a good profit you need to consider your holiday let costs.
Here we cover everything you need to know from initial setup to the ongoing holiday let costs you need to factor in. We’ll provide you with the information you’ll need to draw up a budget and work out your holiday let running costs. Ensuring your property can pay for itself and get you the best possible return.
Read our complete blog for what holiday let costs to expect when running your business or use the quick links below to find out about a particular topic:
Running a holiday let can be a profitable venture. But renting out a property on a short-term basis has some unique differences to a domestic property.
Beyond the purchase price of your property, there are several additional expenses unique to buying a holiday let. These could very quickly add up, costing more than you might expect. To help you budget, here is an idea of what additional setup costs you can expect.
Purchasing a property tends to be the biggest cost when running a holiday let. Whether you have the upfront funds or you require financing, the initial capital outlay will be your largest expense.
If you are opting for the lending route, there are specialist mortgages available to holiday let purchasers. The mortgage required for a property rented on a short-term basis to holiday guests is different to that of a private use second home.
It may come as a surprise, but holiday let mortgage interest rates are much higher than a regular home loan, with the average fixed rate starting at approximately 3.95%. On top of which the deposit needed for a short-term holiday let property is likely to be higher than usual.
The good news is that if you run your property as a Furnished Holiday Let, the interest can be offset in full against the your letting profits.
Lenders ask for an average of 25% deposit of the value of loan on a holiday let mortgage. For an in-depth look as to whether you’ll need a specialised mortgage for your holiday let, read our article on financing a holiday home.
Planning permission is generally not required when purchasing and running an existing holiday let. It may however be applicable if you’re starting a new business, converting or extending your property. If so, you will need factor in the cost of the works involved, as well as the planning permission fees.
The cost of an application will vary depending according to the type of application you are applying for. For change of use to a property, you can expect to pay £96.00. For a full planning application, the cost can be up to £462.00.
Visit the planning portal to find out whether you’ll need an application and the UK government website to find what fee you could expect to pay.
Purchasing any residential property in England and Northern Ireland worth more than £125,000 will have a standard Stamp Duty Land Tax (SDLT). The charge works on a tiered basis. This starts at 2% increasing in relation to the value of the property thereafter, up to 12% for properties of £1.5 million and over.
If your property is in addition to your main residence; be it a second home, holiday let or buy to let, there is an extra charge. This is known as Higher Rates on Additional Dwellings Tax (HRAD). This is paid on top of the standard Stamp Duty and starts at 3% for properties up to £250,000. From there, it rises in increments, up to 15% for properties of £1.5 million and over.
Use the HMRC Stamp Duty Land Tax calculator to find out how much tax you can expect to pay on a property.
Furnishing your holiday let to a high standard will ensure your property is fit for purpose and more appealing to potential guests. Not only does it make it stand out from competition but will leave a lasting impression on visitors and hopefully result in repeat bookings.
Creating a stylish, inviting yet functional and relaxing interior may mean spending a bit of extra money on high quality, durable furniture. All of which will save you money in the long run.
When considering your budget and how you’ll furnish and decorate your property, consider allocating funds for luxury features. While it may cost more initially, these additional features are extremely popular and are likely to earn you more revenue.
Our figures show that properties with a hot tub generally earn 49% more than those without. And adding an open fire is likely to increase your earnings by 19%, so it’s definitely worth considering when working out your budget.
Fortunately, if you’re planning to register as a Furnished Holiday Let, there are many tax advantages and benefits you may be eligible for which will help offset some of the costs you incur.
You’ll be able to claim Capital Allowances on what you spend on your holiday lets interior. These can be deducted from your pre-tax profits. In order to qualify, there are a minimum set of requirements when it comes to furnishing your property. Our guide to tax for furnished holiday lets explains this in greater detail.
It is important to work out the cost of running a holiday let, so you can draw up a budget and work out your finances. The busier you are, the higher the overheads, but this will be offset against the additional income from more bookings.
Here we highlight some of the most common costs you will need to consider on a weekly basis:
First impressions count for everything when it comes to holiday letting. So, making sure your property is well presented and immaculately clean for guests is essential. After each booking, your holiday let will need to be thoroughly cleaned and all linen laundered. These changeovers may take some time and effort to do in between each booking.
Holiday let changeover costs will be an important expense to factor in, whether you opt for a cleaning company or use the services that a holiday letting agency like Cornish Cottage Holidays can arrange. While it may be an additional expense, hiring professionals to help could make all the difference to a successful holiday let business. After all, they are experts, they will ensure your property is perfect for every guest that arrives.
Providing a welcome pack is an additional touch appreciated by guests. A great starting point is providing essentials like milk, bread, tea, coffee and preserves. You could also choose to provide a small hamper of delicious local goodies. If you’re pet friendly a few extras to make your four-legged guests feel at home will always be well received. You can tailor your welcome pack to suit any budget.
Another essential to welcome your guests and help them settle in, is to provide a comprehensive guest information folder. Read our blog about how to put together a guest information folder for your holiday home for tips.
As with any property, running a holiday let requires ongoing work to keep things looking good. To keep your property in tip-top shape, you’ll need to consider ongoing weekly costs such as a professional garden service, or a handy-man service who can do necessary maintenance and repairs.
Enlisting the help of a professional agency like Cornish Cottage Holidays to manage your holiday let will make your life easier. Working directly with our suppliers, our team can organise and conduct a range of services. From changeovers to property checks through the winter, our Managed Services team are there to help.
There are a range of ongoing monthly costs of running a holiday let. Whether they are fixed or variable, it is important to budget for everything – especially those unforeseen expenses.
If you own a second home or holiday home, you will either need to pay holiday let business rates or council tax for your property.
Business rates are the equivalent of council tax when you own a self-catering holiday property for guests. The difference is that instead of council tax, you are required to pay tax on business rates.
Holiday let properties in England that are available to let for 20 weeks (140 days) and physically let for at least 70 days in the last 12 months, will be classed as a self-catering business and valued for holiday let business rates.
Whilst your holiday let may be subject to business rate property tax, you may be able to claim Small Business Rate Relief, which will reduce the amount of tax you will have to pay. You may qualify if rateable value of your property is less than £15,000. Visit the HMRC page for information on Small Business Rate Relief.
As an owner, you need to ensure you’re protecting your holiday home and guests should anything happen. Holiday let insurance is a specialist form of cover that covers a multitude of elements that regular home insurance will not provide.
Your holiday let is a major financial investment and having a holiday home insurance policy will include buildings and contents cover as well as loss of potential income. It’s also advisable to ensure that your cover extends to include your guest. Having public liability insurance for a minimum of £2 million, is considered an essential cost of running a holiday let business.
Your holiday let will need to be a fully functional ‘home from home’ for your guests. As with any home, this means you’ll have to factor the price of utilities into your holiday let running costs.
These include water, electricity, gas and heating. These days WiFi is considered an essential household service, so will also need to be factored in.
Many of these holiday let costs can be accurately budgeted for annually, so there aren’t any unexpected surprises. It’s also worth shopping around for your energy supplier, so you can find the most competitive deal on the market.
A self-catering holiday property is classed as a business, so your refuse collection will be an additional cost to factor in. Find out your key responsibilities and what costs to expect in our useful guide to Cornwall holiday home waste collection.
In order to provide the perfect getaway for guests, it’s worth factoring in the price for entertainment. These costs include a smart TV with subscriptions to the latest streaming services like Netflix, Sky and Amazon. To allow guests to watch or record live TV your property will need to be covered by a TV licence. The cost of this is £154.50 which needs to be renewed annually.
It’s imperative to include the cost of safety checks in your holiday let costs. Many of these are required by law and must be done on an annual basis. These include gas, electric and fire safety checks.
It’s crucial to keep your certificates up to date, and your guests safe. Regular cleaning of your chimney or flue is also advisable. It can reduce the build-up of soot, clear obstructions, help prevent fires, and prevent carbon monoxide poisoning.
A holiday property tends to be subject to more wear and tear than a home. You’ll need to allow for the cost of repairs and replacements when calculating your likely returns.
It’s also wise to put some money aside each year that will allow you to update items as and when required to keep your property looking its best.
Ensuring you have a clear understanding of holiday let costs as well as making sure every eventuality is prepared for will help make your venture a profitable one. But unexpected expenses can’t be predicted, and often play havoc with your budget.
When it comes to running a holiday let, there are always going to be unexpected costs. Whether it’s a faulty boiler, leaky roof, plumbing issues or urgent appliance repairs, they are all things that need to be sorted immediately. So, it’s essential to have some money put aside for these emergencies. Especially the things that won’t necessarily be covered by your holiday let insurance.
Enlisting the help of a holiday let management company such as Cornish Cottage Holidays for expert advice and support can make all the difference to help you achieve holiday let success. Partnering with a team of industry experts who specialise in the self-catering holiday market is key to your property’s earning potential and overall success.
The holiday letting agency fees you’ll pay depends on the level of service you choose. A fully managed service is one that looks after every aspect of your property from the cleaning and laundry to the maintenance and key collection.
A partially managed service means that you opt for just one or two of these services. For example, you may choose to have a cleaning and laundry service at your property but would prefer to carry out any maintenance work yourself.
You can read more about choosing a holiday letting agency in Cornwall to find the right management option for you.
With so many expenses involved in running a holiday let business, it’s worth considering saving options whilst still providing guests with the facilities they require. With just a few simple changes to how you run your holiday cottage, you could save yourself a substantial amount of money.
The taxes involved with running a holiday let can be confusing. But if you get it right you could be looking at significant savings and financial gains for your business.
Furnished Holiday Lets have a unique standing with taxation, and therefore gain from certain benefits and allowances.
If your property meets the required criteria there are various tax relief schemes that you could benefit from, all of which would reduce your holiday let costs. Visit the HMRC HS252 help guide for more information.
How did the Spring 2024 Budget affect Furnished Holiday Lets?
On 6th March 2024, the Budget included an announcement that the Furnished Holiday Let tax regime would be removed from 1st April 2025. There will likely be a period of transition from that date. Technical guidance is due to be released shortly, which we’ll scrutinise alongside the legislation changes, and we’ll update our blog on Furnished Holiday Let tax as soon as possible subsequently. As of April 2024, the tax regime in this blog is still in existence.
With the cost of energy rising at an unprecedented rate, looking at ways to reduce your holiday homes heating costs is a prudent way to make a saving. Making just a few small changes in your holiday home can go a long way.
Consider adding insulation into loft spaces which will make a huge difference to your bills. Keep your property’s heat in by adding double glazing. Or just a simple step like checking window and door seals to make sure they aren’t letting in a draft.
It is also worth comparing the offers between suppliers to make sure you’re getting the best rate.
Increasing the energy efficiency of your holiday cottage not only benefits the environment by reducing its carbon footprint but makes financial sense too.
Start with simple changes like switching to LED bulbs which use 75% less energy. Choosing to use energy efficient appliances in your property will lead to considerable savings over time.
Applying all or some of these tips will help make a small but measurable difference. For more advice on saving costs while reducing your homes carbon footprint read our blog on how to make your holiday home eco-friendly.
There are simple yet effective ways to reduce water consumption and save money on your bills. Using a toilet cistern reduction device reduces the amount of water held in a tank and can save up to three litres of water with each flush.
Help guests conserve water by fitting aerators to taps and installing low flow shower heads.
Your holiday property will naturally see a high number of guests throughout the season, so it’s worth thinking about the quality and durability of your furnishings.
Buying items that are well made and can withstand heavy use will cost more in the beginning but will help you avoid spending more in the long run. Not only will they look better for longer but won’t need replacing as often.
Maintaining your holiday home can be time-consuming and costly. But keeping your holiday home well maintained will reduce the risk of any long-term damage and expensive repair costs. It pays to solve a problem immediately than let it get worse and potentially cost you more in the future.
Every holiday let will vary in cost to run. The size of your property, the extras you provide and whether you outsource help will all affect your outgoings.
At Cornish Cottage Holidays, our dedicated team of local experts focus who can help advise on holiday let costs and ensure you maximise the return on your investment. We know the key ingredients for a successful holiday let and are confident that we’ll get the best booking levels, with the average holiday let owner earning £21,000 a year*.
Are you in the process of looking to buy a holiday let or have an existing holiday cottage to let in Cornwall? No matter where you are in your holiday letting journey, it is fundamental that you plan ahead. Consider how you can keep running costs manageable, in order to make your holiday let successful and generate a good profit. For more useful holiday home owners tips, head over to our Owner Advice blog.
At the time of publishing Cornish Cottage Holidays has taken all reasonable care to ensure that the information contained in this article is accurate. However, no warranty or representation is given that the information is complete or free from errors or inaccuracies. Generic information is contained within this article and each individual’s tax affairs are different. Further advice should be sought from an accountant.
*Statistics from Sykes Holiday Letting Outlook report 2022
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by Janine de Lange / Owner
I’ve had the privilege of living in the beautiful South West since 2010, and in my opinion there’s no better place in the worl...
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