Following the complexities of Brexit, as well as the COVID-19 lockdowns and concern about ongoing travel restrictions, staycations have been increasingly popular with the British public in recent months. And with British Airways cancelling four months’ worth of flights this summer, some people have had no choice but to holiday in the UK this year.
This trend looks set to continue as people are not only settling into new holiday habits, but flexible working is becoming the norm. This means that if you’re considering buying a holiday home in the UK, now could be a good time. From Cornwall to the Scottish Highlands, Britain has plenty of holiday hotspots, whether you want beaches and watersports or hikes in nature.
An added bonus of having a holiday home is that you can rent it out when you’re not using it. But how much can you make from rental income? And is there anything else to be aware of — like taxes and insurance requirements?
In this article, we’ll outline all the benefits of owning a holiday home and advise on some of the things to think about before you buy one. We’ll also reveal whether there are any disadvantages to owning a holiday home, so you can make an informed decision.
Are holiday homes a good investment?
As well as having a bolthole you can escape to when you need a change of scenery, owning a holiday home can provide lucrative returns if you treat it as a successful business and let it out.
While you may have to fork out for things like insurance, furnishings and servicing, any rental income you receive can go a long way to cover your costs — and even enable you to save money.
Continue reading to find out more about buying a holiday home.
What are the benefits of owning a holiday home?
As mentioned above, two of the biggest benefits of owning a holiday home are that you have a permanent place that you can escape to whenever you like without paying for additional holiday accommodation, and you can also rent your holiday home out in order to generate an income.
Some of the other advantages of owning a holiday home are:
- The demand for UK holidays is predicted to continue, meaning your holiday home has more chance of being booked up for most of the year.
- As a result of the pandemic, a new “workcations” market has emerged. This means there’s more potential to let out your holiday home for longer periods and save on admin and changeover costs.
- If you develop a run-down property or buy in an area that becomes more popular, your holiday home’s value could increase considerably over time.
- It can be emotionally rewarding when your guests praise your property for making their birthday, honeymoon, engagement or holiday a memory they treasure for years to come.
- You can explore the area surrounding your holiday home in-depth and even make friends with the locals.
- Holiday lets tend to provide much higher returns than buy-to-let investment properties.
- Because holiday lets are classed as a business (rather than an investment), they have attractive tax benefits. See the next section to find out more about these.
What to think about when buying a holiday home
Whether or not to buy a holiday home to rent out isn’t a decision to be taken lightly. To help you decide whether holiday letting is right for you, here are some points to think about:
Stamp Duty
When you buy your holiday home, it’s worth noting that you may have to pay Stamp Duty. Stamp Duty is a tax that’s levied on the sale price of property worth more than £125,000.
Here’s how much stamp duty you might have to pay, according to what your holiday home is worth:
| Property purchase price | Stamp duty |
| £0 — £125,000 | 0% |
| £125,001 — £250,000 | 2% |
| £250,001 — £925,000 | 5% |
| £925,001 — £1.5 million | 10% |
| More than £1.5 million | 12% |
Note that if you already own a property, you will have to pay an additional three per cent Stamp Duty charge on any second property you buy.
Capital Gains Tax
You may also have to pay Capital Gains Tax if you sell your holiday home for a profit. Furnished holiday lets are exempt from this, however, and if you buy another holiday let, any gain from the first property can be deferred until the time comes to sell the second.
Business Rates
As stated above, a holiday let is classed as a business rather than an investment, which means you’ll pay Business Rates rather than Council Tax.
Inheritance Tax
Currently, holiday lets are exempt from Inheritance Tax, although HMRC is challenging this, so you may have to pay it in the future.
Mortgage
Unless you’re buying your holiday property outright, you will need to take out a mortgage. If you don’t plan to rent it out, you can apply for a standard residential mortgage. Otherwise, you will need a buy-to-let mortgage.
Buy-to-let mortgages are generally more expensive for holiday homes, and your lender may require you to have a higher minimum income because of fluctuations. You may also have to show your mortgage lender proof of weekly earnings, and some will insist that your property is let via an estate agent rather than advertised on a website like Airbnb.
Insurance
If you’re letting out your holiday home, you need to buy holiday let insurance. This will usually include things like accidental damage and public liability, which means you’ll be covered if someone injures themselves or dies while staying at your property.
It’s also a good idea to make sure your policy covers you for loss of rental income to prevent you from losing out if bookings are cancelled.
Furnishings
If you want to generate an income from your holiday home, it’s important to think about how you can make it as appealing as possible to holidaymakers.
While you may love bold walls and garish statement pieces, a property that’s more understated and neutral will have wider appeal and increase your number of bookings. That said, it’s still important to make sure your property has a comfortable and homely feel that’s not too clinical. Themes also work well in holiday homes. If, for example, your property is by the sea, consider decorating it with shells and sailor stripes to remind your guests where they are.
To reduce your tax bill, you can offset certain furnishing and equipment costs against your rental income ( it’s also worth noting here that you can deduct other expenses too, for example, utility bills, cleaning costs, maintenance and property management fees and advertising).
Remember that furnishing your holiday home may also mean that you are exempt from paying Capital Gains Tax when you sell the property. You may also be eligible for full mortgage interest tax relief.
There are some stipulations to be aware of, though. To qualify as a furnished holiday let for tax purposes, your property must:
- Be available to let for a minimum of 210 days per year
- Be let commercially to the public for a minimum of 105 days per year
Note that the days you stay in your holiday home and days your family or friends stay for free or at a reduced price will not be counted in this. Lets over 31 days won’t count towards this either.
Amenities
When you’re house hunting for a holiday home, take note of each property’s amenities. Holiday lets with the following amenities tend to earn more in rental income than those that don’t:
- Close to shops, pubs, restaurants, tourist attractions and transport links
- Fast Wi-Fi
- Garden, terrace or balcony
- Hot tub
- Multiple bathrooms for properties that can accommodate more than two people
- Open fireplace or wood burner
- Parking
- Workspace
Servicing
If you live close enough to your holiday property, you may be able to service it yourself. Otherwise, you will need to hire a management company to look after it when you’re not there.
Location
While properties in certain areas can bring in more rental income, it’s important to buy a holiday home somewhere you would like to visit yourself. This is so you can offset your own holiday costs as well as run a successful staycation business. With that in mind, it makes sense to ask yourself questions like, “How far do I want to travel to my holiday property?”, “What do I like to do while I’m on holiday?” and “Where are the UK’s most popular tourist destinations?”.
On the other hand, it’s not a good idea to let your heart rule your head so much so that you end up buying somewhere you love, but other people have no interest in visiting. With that in mind, it might be helpful to know that some of the most lucrative areas for holiday lets are Devon, the Cotswolds and the Peak District. But also bear in mind that some tourists like to explore lesser-known locations that they’ve never been to before.
You also need to consider which areas you can afford to buy property in. You won’t be maximising your return if all your rental income is spent on mortgage repayments. However, that’s only if you want to make money in the short term. It’s a different story if you’re buying a long-term investment property in the hope that its value will have increased by the time you come to sell it.
Are there any disadvantages of owning a holiday home?
Earlier, we mentioned the three per cent Stamp Duty surcharge on the purchase of a second home, as well as the fact that mortgage lenders may have stricter requirements than they do with residential and traditional buy-to-let mortgages.
Some of the other disadvantages of buying a holiday home are:
- Bookings during off-peak seasons can be limited, meaning you lose out on rental income during this period while still having to cover your holiday home running costs
- Cleaning and disinfecting your property due to COVID-19 compliance rules can increase changeover times, as well as being more costly and time-consuming.
- Even if you hire a servicing company, the admin involved can be time-consuming and stressful, as there will be some things they won’t be able to handle for you.
- Holiday properties in tourist destinations are usually expensive to buy.
- It can be disheartening when you receive complaints from your guests.
- Managing the property yourself can be like a full-time job. Some of the things you would typically need to handle include arranging check-in and check-out, dealing with complaints, organising guest changeovers, marketing and responding to enquiries.
- Some councils require you to have planning permission if you’re letting your property out for more than 90 days a year, and your building’s freeholder might also put restrictions on short-term lets.
- Staying at your holiday home during peak times means you won’t be able to benefit from higher prices.
- The upkeep and maintenance of holiday properties can be costly due to the constant footfall of different guests.
- You are only eligible for certain tax benefits if you meet specific criteria.
- You may lose out on rental earnings in popular tourist destinations due to increased competition driving prices down.
- You need to offer all the necessary amenities and modern comforts, as well as furnish the property to a high standard in order to attract guests and receive positive reviews. Again, this can be costly and time-consuming.
Summary
With staycations in the UK becoming increasingly popular, now could be a good time to buy a holiday home. Owning a holiday property can provide lucrative returns in two ways: As well as being able to cut down on your own holiday costs, you can make good money in rental income if you treat it as a successful business and let it out. While you will have to pay for things like taxes, mortgage repayments, insurance, furnishings, amenities and servicing, any rental income you receive can go a long way to cover your costs — and even enable you to save money.
Admittedly, there are some disadvantages to buying a holiday home — such as the added stress of admin and maintenance and a reduced income during low season or in popular tourist destinations — but with the right property in the right location, you stand to make a good profit from it.
