Holiday Lets - a Better Alternative to Buy-to-Let?
Holiday lets in the UK are increasing in popularity
The UK’s obsession with property ownership has been deep and long-lasting. Recessions and a global financial crisis have hardly put a dent in investors’ appetite for buy-to-let residential property. But recent changes in tax rates and legislation may lead to a structural change in the market.
The buy-to-let market in Britain is equivalent to 3% of GDP and one in 30 of us are landlords, according to a 2018 article by The Economist. Loose monetary policy, low yields in other asset classes and an emotional attachment to property ownership have contributed to an increase in buy-to-let investors to a record high of 2.5 million in 2018.
A raft of unfavourable tax changes, tightening of lending criteria and proposed changes to Section 21 of the Landlord and Tenant Act could have put an end to the inexorable demand for residential buy-to-let property. Tax increases in the last 3 years include a 3% stamp duty levy, a reduction in interest tax relief and the abolition of the flat-rate 10% wear and tear allowance.
Holiday lets may be an attractive option for individuals who still like the idea of investing in property but are concerned about the challenges of the buy-to-let market. National average yields are around 10%, according to a report by Second Estates. Furnished Holiday Lettings are taxed on a different basis from buy-to-let residential properties, which may be more favourable for many investors. However, certain conditions need to be met to qualify so it’s essential to understand these in advance.
As with any business, a holiday let requires careful analysis before committing to an investment. Advice from a qualified professional is recommended if you’re unsure about legal and tax implications of owning a holiday let property.
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Image by Tim Hill from pixabay