The UK’s holiday lets sector could be a beneficiary of the current Brexit uncertainty and people not vacationing abroad because they feel poorer, a lender claims.
“Possible Brexit scenarios could mean many people have less money to travel abroad and choose to holiday closer to home. At the same time, if it becomes more laborious and possibly costs more to travel to Europe after Brexit, this too could have an impact on holiday destinations” according to Andrew Turner of specialist lender Commercial Trust. The upshot is that landlords who use their rental homes as holiday lets, could potentially do very well out of Brexit, as a result of growing demand” he insists.
Furnished Holiday Lets are viewed as businesses by HM Revenue & Customs and consequently, the tax treatment is different to traditional buy to let income.
FHLs have not been damaged by recent changes to buy to let mortgage interest tax relief, meaning an FHL landlord can currently still claim 100 per cent of the interest paid on their mortgage.
Furthermore, Turner says income from FHLs may be invested into a pension, where it may benefit from tax relief under present law.
Landlords of FHLs are also able to claim capital allowances on wear and tear and furniture replacement, whilst also having the ability to claim capital gains tax relief as a business.
Net yields on FHLs can also be competitive, compared to returns on buy to let investments. In June 2018, property fund Second Estates indicated that FHLs had an average net yield of 6.1%, compared with 5% for residential buy to lets. It stated that the average weekly income on a holiday let was £563, whilst it was £161 for a typical buy to let.
Some lenders will also allow the landlord to live in the property, for a restricted proportion of each year, which is something not permitted with buy to let.
Turner says that lenders will expect landlords who borrow to fund the purchase of a new FHL to have a separate income and will often set a minimum amount, which has to be proven. Lenders will also expect a prospective FHL landlord to have prior landlord experience.
The property must be furnished and commercially let, with the objective of making a profit and in addition to legal requirements, lenders will set a minimum number of days each year when the property must be available for letting – and typically they will also set a minimum number of days per year that it is let out for.