1 April 2011

Furnished holiday lets: a good investment?

The previous Labour government was keen to abolish some of the tax benefits available on furnished holiday lets. Fortunately, the new Coalition government want to encourage tourism and help with prosperity and employment in tourist areas so they have kept some of the benefits.

There are around 65,000 furnished holiday lets in the UK, not just in coastal areas but also tourist hotspots, towns, cities and quaint villages.

Holiday lets qualify for certain tax benefits available to businesses as they are deemed to be a business activity by HMRC. However, you have to follow certain rules, which are:

1. Your accomodation must be available for letting to the public for at
least 140 days a year and let for at least 70 days during the year.

2. The property can't be let to the same person for more than 31 days

3. You must operate on a commercial basis with a view to making a profit

4. You cannot claim the tax benefits when you occupy the property yourself

5. The property must be fully furnished and let at a full market rent

If you meet this criteria then all your rental income is subject to income tax but ALL your expenses are allowable. These could include legal and letting fees, accountancy fees, cleaning, decorating, maintenance, heating & lighting, insurance, mortgage interest payments and travelling expenses.

The income can be quite lucrative with rentals of around £750-1000 a week for a three/four bedroomed property in a good location. If you live near your holiday let, you can manage the check-ins/check outs yourself and its nice to meet different guests and get their comments on your property from the guest book.

The work load is greater than a conventional buy-to-let and your bookings may fluctuate from year to year but if you operate within the FHL rules and manage your property well, the returns can be excellent.

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