As a landlord, you might find yourself questioning whether to offer your property as a holiday let or long-term let. Future tax changes make this an even more important consideration.
It has been confirmed that the government will abolish the Furnished Holiday Lettings tax regime with effect from April 2025. The tax advantages that holiday lets currently have will cease, possibly making a longer-term let at the least an equally valid option to consider.
Read on to understand some of the benefits and challenges around both options and how they might align with your investment goals.
What is the Furnished Holiday Lettings tax relief?
The current rules provide beneficial tax treatment for furnished holiday lettings compared to other property businesses in broadly four key areas:
- Exemption from finance cost restriction rules
- More beneficial capital allowances rules
- Access to reliefs from taxes on chargeable gains for trading business assets
- Inclusion as relevant UK earnings when calculating maximum pension relief
The new measure aims to promote fairness and align the tax rules for furnished holiday lettings with those for other property businesses. So, after repeal, the tax advantages that furnished holiday let landlords have over other residential property landlords will have been removed.
What are holiday lets?
Holiday lets are properties specifically furnished and marketed for holiday goers. These types of lets offer them a temporary home away from home, and provide them with a flexible alternative to hotels. Holiday lets are usually let out for a few nights to a month and need to be let out for at least 105 days in the year.**
What is a long-term let?
A long-term let serves as primary residence for tenants who are renting, instead of purchasing a home. Long-term lets can offer stability and a consistent income stream for landlords.
What are the benefits of holiday lets?
Holiday lets come with the potential for higher income, especially during peak tourist seasons. Landlords can adopt flexible pricing strategies, adjusting rates to match demand. This can lead to significant profits, particularly in sought-after locations.
What are the disadvantages of holiday lets?
While these types of lets can be lucrative, they come with their own set of drawbacks. The seasonal nature of tourism can lead to fluctuating demand, longer void periods, especially out of the holiday season, and therefore potentially unpredictable income. Managing a property with high guest turnover entails more frequent cleaning and upkeep, translating to higher operational efforts and costs. Moreover, the intensive management required for bookings, guest relations, and property maintenance can be quite time-consuming for the landlord.
What are the benefits of long-term lets?
Long-term lets provide a consistent income for landlords, with fixed rental rates. As utility bills and council tax tend to be covered by tenants, it can also mean there are fewer things to worry about.
On the whole, long-term lets provide a more consistent income and, as a landlord, when letting longer term you have the opportunity to build a strong, positive and reliable relationship with your tenant and agent.
What are the disadvantages of long-term lets?
Long-term lets, while offering stability, can present some limitations such as reduced flexibility for the landlord to utilise the property for personal use. Additionally, even though these types of lets provide a more consistent income over a greater period of time, you might find that, in the short term, the yields may be lower than with lets shorter than 6 months.
How do new Government regulations affect holiday and long-term lets?
Government regulations are continually evolving, impacting both holiday and long-term lets. In the 2024 Spring Budget announcement, Jeremy Hunt abolished the Furnished Holidays Lettings tax by scrapping the tax break for second homeowners who let out their properties to holidaymakers rather than to long-term tenants to rent. Additionally, the stamp duty relief for those purchasing multiple dwellings in one transaction has also been abolished, meaning that anyone thinking of buying multiple properties to let, will be paying the regular stamp duty tax in England (unless other stamp duty tax relief applies).*
So, what’s better – holiday or long-term tenancies?
With holiday rentals, you have to market them heavily in order to fill the property, plus you have to deal with regular changeovers, plus paying all bills on the property. There’s no doubt that long-term investments also require time and effort - you’ll need to research and buy the property and then manage the investment from then on. However, switching to long-term tenancies has the potential to reduce the amount of work needed to manage the property day to day and, especially if you opt to work with an agent, it can be fairly hands-off.
In conclusion, whether you opt for holiday lets or long-term residential tenancies, each choice offers distinct advantages and disadvantages. Consider your personal circumstances, investment goals, and the level of involvement you're willing to commit to when making your decision. What is most important to you strategically - a longer term, more stable income from a long-term tenancy or the greater flexibility of a holiday let. Remember, you're not alone in this journey; professional letting agents can provide valuable assistance, helping you navigate the complexities of the property market.
