Many landlords in Cotswold have been hit particularly hard by the new buy-to-let tax regime. Landlords previously qualified for tax relief on their mortgage payments at their marginal rate, which allowed higher-rate taxpayers to claim 40 percent. Because of the shift to a flat rate of 20%, many landlords have seen their earnings fall significantly.
However, holiday houses are excluded from the new rules. You can still claim greater and top-rate tax relief on mortgage interest payments, and the yields from property rental may be substantial: £12,000 to £15,000 per year for the typical two-bedroom cottage in the United Kingdom.
Here are some pointers for becoming a holiday landlord or landlady for the first time.
Choose your home with care
Two golden rules of business that apply equally to vacation rentals. Unless you’re a seasoned pro, stick with what you know and buy a property in a location where you want to go on vacation. This will allow you to decide whether the rent is worth it, as well as allow you to use the house yourself when it’s empty.
Choose the appropriate mortgage
If you want to rent it while on holiday, be aware that normal mortgages, not buy-to-let or second residential mortgages, usually prohibit people from letting the property as a holiday home. To discover the best mortgage for your needs, speak with a mortgage broker or financial adviser.
Remember to tell the taxman
Tell HMRC that you want to start renting out your vacation home, and you may be required to pay taxes on your earnings. You must declare any rental income over £2,500 in your self-assessment tax return. If the income is less than £2,500, you should still call the Self-Assessment Helpline.
Claim any allowances you’re entitled to
Letting a holiday home is considered a trade rather than an investment, which allows you to take advantage of more advantageous tax treatment. You may be eligible for various tax credits and deductions.
- Capital allowances on furnishings and equipment
- Capital gains tax reliefs, e.g. business asset rollover relief.
Your vacation home must satisfy specific conditions in order to qualify for these reimbursements, such as being available at least 210 days a year and letting for more than 105 days each year. You must also charge market-rate rent if you have one or two guests.
Use your advantages
If you’re letting out a holiday property that you use yourself, you have an advantage over a vacation rental company. You know the region well, and there are plenty of exciting things to see and do there. You can store beach gear and toys for kids in the home and allow their usage, as well as provide tips based on your own experiences.
Build a reputation
If you set out to break even on your mortgage costs right away, as many new business owners do, you risk cutting corners and putting clients off. Start slowly — don’t go all-in for maximum profit right away, since that’s a surefire way to cut corners and put customers off. Set out initially just to break even on your mortgage expenses while learning your trade. Encourage people to post reviews about you online, and when you’ve established a reputation for providing great service, gradually raise your prices to reflect your house quality.
Go and stay there yourself at least once a year
Spot-checks are fantastic, but they seldom discover everything. Maybe the water boiler needs to be recharged or the dishwasher is stinking, or there’s a problem with a neighboring property – there are several issues you may only notice after living there for a while. It’s an excellent reason to take a relaxing long weekend off and tell everyone you’re working from your lie-in.
There are numerous websites that make it simple to rent out your vacation home for little periods of time. Other providers include HomeAway, VRBO, FlipKey, Housetrip, Homestay, and others. It’s worth experimenting with a few to see which one works best for you.
While holiday-makers may want to get away from it all, most will want easy access to social media, email, and the web to see what’s going on in the neighborhood. Having free Wi-Fi at home will endear your tenants to you while making it easier for them to contact you. Other technology you might consider includes remotely controlled heating so that you may manage it yourself during downtime. Heating (including radiator reflectors) that is efficient will improve your chances of getting reservations throughout the winter months.
Put up signs that inform your visitors and establish house rules
It’s your home and investment, so you don’t want people there who you might inadvertently harm. If you believe you’re renting to a family of four and wind up with ten rowdy students sleeping on the floor and smoking inside, you have the right to be dissatisfied and seek compensation – but this must be stated clearly in your terms and conditions. Be firm yet fair; it’s important that everyone has a good time at your house.
If you’re looking to make money by renting out your primary home while you’re on vacation, speak with your financial advisor about maximizing income from a buy-to-let holiday property.
If you own a property in the Cotswold area, why not check out StayCotswold for assistance with renting your property out?