Forget buy-to-let: These property owners earn up to £36k a year and pay less tax | Personal Finance | Finance


Holiday lets can be more tax-efficient than buy-to-let, with the added charm of being free to holiday there yourself when it’s not being rented out. 

The staycation boom appears to have survived both the end of the pandemic and the cost-of-living crisis, with holiday home owners reporting rising income.

Like any property investment, though, it requires a lot of effort and application.

Holiday home owners earned £28,000 on average last year, with bookings up a third on 2021, new research from Sykes Holiday Cottages shows. 

Cumbria & the Lake District was the top earning region, with a four-bedroom house bringing in an impressive £36,000 a year.

It was followed by the Peak District with an average £33,000 income, then Cornwall and Devon in joint third place earning £32,000.

Bev Dumbleton, chief operating officer at Sykes, said staycations offer holidaymakers a more affordable alternative when money is tight. “Brits rediscovered their love for holidaying closer to home during the pandemic and demand is holding up.”

One cloud on the horizon is that the Government has launched a review into short-term holiday lets in England, and may introduce spot checks for health and safety, noise, parties, anti-social behaviour and gas safety.

It is also worried about holiday home investors squeezing out the locals.

Dumbleton said one in four owners are worried but added: “Any immediate changes are unlikely”

Holiday lets have several tax advantages over buy-to-let. Owners may register as a business and pay business rates instead of council tax, which are often lower. 

They can also offset operating costs against tax, for example washing and cleaning costs, as well as furniture and equipment.

When holiday home owners sell, capital gains tax is charged at just 10 percent, whereas buy-to-let owners pay 18 or 28 percent, depending on their tax bracket.

Alternatively, holiday let owners can roll over their profits into a new holiday let, if they prefer.

Everyone buying a second home or investment property has to pay a stamp duty surcharge of three percent, and that includes holiday cottage owners.

To qualify as a holiday let, it must be available for let at least 210 days a year, and commercially let for 105 days to non-family members.

Properties must be fully furnished, and cannot be let for more than 31 days to the same guests.

It can be trickier to get a mortgage to buy a holiday as fewer lenders offer this type of mortgage, said Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With less competition and choice, rates tend to be higher.”

Buyers also have to come up with a slightly larger deposit, a minimum of 20 percent of the property’s value and in most cases 25 percent.

They may also have to demonstrate how much income they expect to make.

Holiday let mortgages typically charge more than buy-to-lets, Harris said. “Principality Building Society, for example, offers a two-year fixed-rate buy-to-let mortgage charging 4.75 percent with a £895 fee. Its equivalent holiday let mortgage charges 5.60 percent.”

Similarly, Leeds Building Society offers a five-year fixed-rate buy-to-let mortgage at 4.55 percent with a £999 fee, which rises to 5.85 percent on its holiday let loan. It’s worth talking to a broker to get the best deal.”

READ MORE: Want to wreck your finances and mental health? Become a buy-to-let landlord?

Holiday homeowners have to compete hard to beat the allure of a foreign holiday, said Harry Roberts, managing director of My Favourite Cottages, who offers the following tips.

Know your target audience. “If your home is near the beach and other attractions, it will likely appeal to families, so make it attractive to them.”

Get the pricing right. Research what your competitors are charging and how much customers are willing to pay, Roberts said. “To boost demand, try offering midweek and off-peak deals, or discounts for bigger groups and longer stays. Don’t pitch yourself too low, as it could make your holiday home look cheap.”

Install special features. A wood-burning fire, hot tub or outdoor dining area with a view could make your place more desirable, Roberts said. “They will help you achieve the positive reviews you need to maximise bookings.”

Go above and beyond. Guests should have a welcome pack full of information about your property and its location, things to do and places to see.

“Your property should be clean and well maintained, with plenty of amenities and equipment to use during their stay, plus a point of contact,” Roberts said.

Most important of all, make sure the Wi-Fi works. These days, it’s the first thing most guests check.

Running a successful holiday let can be profitable, but it’s no holiday.


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