The ultimate guide to renting out a UK holiday home12-09-2022 | Other
Sure, the world is opening up again and travellers are keen to get away and take a well-deserved break. However, what the ideal holiday looks like for many of us has shifted.
The reduction in travel during the COVID-19 pandemic has encouraged us to find inspiration and pleasure closer to home. Gone are the days of jet-setting to tropical climates in order to detach from the world and recharge. The UK has a lot to discover and explore, so it’s no surprise that staycations are slowly but surely becoming the new norm.
In fact, as lockdown restrictions eased, we saw a surge in holiday bookings for UK staycations, with the number of domestic getaways booked increasing by 300%. Despite the easing of international and recreational travel restrictions, the swing towards domestic tourism doesn’t seem to be slowing down anytime soon.
Research shows that domestic holiday bookings have increased by 82% since Summer 2020. What’s more, just over a quarter of holidaymakers reported that they preferred holidaying at home, as opposed to travelling abroad. This suggests that if demand for holiday lets continues to soar, UK landlords with holiday homes should have little trouble filling beds.
Not to mention, air travel has been deemed one of, if not the most damaging way to travel for the climate. Although the aviation industry may only be responsible for around 5% of global warming, air travel can make up a significant slice of our personal carbon footprints. For this reason alone, 87% want to travel more sustainably.
More than that, 53% of holidaymakers say they get frustrated if they cannot be sustainable when travelling. Given the fact that we can’t simply drive or catch public transport to many of our dream destinations (or at least not easily anyway), it’s safe to assume that the move towards more sustainable holidaymaking such as domestic tourism will continue to gain momentum.
At a glance, it may seem like the boom in staycations has merely been fuelled by the pandemic and will naturally fall as people begin to travel abroad again. However, don’t let this put you off from investing in the holiday market.
In 2019, Brits took around 123 million domestic holidays, compared with 93 million holiday visits abroad that same year. This highlights that the pandemic alone cannot account for the recent boom in domestic tourism. These figures demonstrate that the holiday let market is quite a resilient and secure one for would-be landlords to enter. But of course, no investment is without its risks. Read on for the full lowdown on how to set up a holiday rental property and renting out a holiday home.
What is a holiday let?
First things first, it’s important to understand what a holiday let is. On the surface, a holiday let may seem like any normal buy-to-let property. However, that couldn’t be further from the truth. There are a few important distinctions landlords need to be aware of. The name is pretty self-explanatory – a holiday let is a property that is used solely for the purpose of a holiday. Usually, holiday lets are rented out for three months or less, and guests will have a main residence somewhere else.
As a general rule of thumb, holiday lets are used for the sole purpose of a holiday stay. However, the term can also refer to any other type of short let situation, such as temporary accommodation (as a means of staying in an area for a short period) and corporate travel.
Legal requirements for holiday lets
Investing in a short-term let may seem like a no-brainer as there are lots of upsides to renting a holiday home. Chief among these is the simple fact that landlords can make as much for one week on a holiday let as they would in one month if they offered their property as a long-term rental.
Having said that, short-term lets can be a risky investment and there are different legal requirements you need to be aware of. It’s important to know your rights and make sure you’re on the right side of the law. Here are the legal requirements for holiday lets.
Furnished Holiday Let conditions
- Property must be furnished and available for commercial holiday letting for at least 210 days per year in order to be classed as a Furnished Holiday Let (FHL)
- At a minimum, the property must be let to guests and holidaymakers for 105 days out of the 210 days it’s available
- If the property is not let for at least 105 days per year, you may not benefit from the favourable FHL tax status.
- Note that if you let the property to your friends and family at zero or reduced rates, those days will not count towards this total as this is not commercial letting.
With that in mind, it’s important to actively promote your holiday let with the intent of making a profit.
At the end of the day, every landlord wants to make a profit from their investment and save money for the future. However, no matter how desirable your property is, you may find it tricky to meet the letting condition of 105 days. Never fear! It can happen to even the best of landlords. Thankfully, you have a few options.
Period of grace election
If you have genuinely tried to meet the letting condition but were unable to do so, you can make a period of grace election. In a nutshell, a period of grace election allows the property to qualify as an FHL providing the availability conditions and pattern of occupation have been met. You will need to provide evidence that you have marketed the property to a similar, if not greater level than in successful years.
Cancellations are also an all too common problem for holiday let owners. Cancellation rates run at around 30% for UK holiday bookings, with travellers sometimes cancelling at the 11th hour due to unforeseen circumstances. If you’ve struggled to meet the letting condition due to cancellations, you will need to provide evidence that lettings have been cancelled due to circumstances outside of your control, such as extreme weather.
Also, you can make a period of grace election in cases where the property has met the letting condition in the year before the first year you wish to make the election. Another upside of a period of grace elections is – providing you made an election in the previous year – you can make a second election if the property fails to meet the letting condition in the following year. Though, it’s worth noting you can only make two consecutive periods of grace elections. This means the property will not qualify as an FHL if it does not reach the threshold by the fourth year.
If you own more than one FHL, and one or more of these properties does not meet the occupancy threshold, you can use averaging for your properties in a single FHL business. Say you let three properties as FHLs in a year, you can elect to apply the letting condition to the average rate of occupancy for all your properties. That way, you can ensure that all your properties qualify for the letting condition. For example, if you let two of your properties for 140 days between 2021 and 2022, and the third for just 60 days, you can use averaging to ensure the third property will qualify.
On top of that, you can use both averaging and a period of grace if you own more than one holiday let. For instance, you can use averaging in year 2 and then a period of grace in years 3 and 4. That way, you can make sure a property qualifies as an FHL and benefits from the special tax rules for the whole period. In cases where the FHL is closed for part of the year because there are no customers, you can deduct expenses like UK holiday home insurance for the whole year, provided you do not use the property as your residence.
Holiday let maximum stay
In order to comply with the Furnished Holiday Letting Rules, a single let cannot be longer than 31 continuous days. Guests should leave the property at the end of their holiday and have no right to remain after their holiday ends. In cases where a let is longer than 31 continuous days, it’s wise to have a formal tenancy agreement in place. This means guests will have the same rights and responsibilities as buy-to-let tenants. Although, it’s a good idea to check with your mortgage lender before allowing guests to stay in your property for longer than 31 days, as you may be violating the terms of your mortgage if you have one.
It’s unlikely, but holidaymakers sometimes end up staying longer than unexpected. Usually, it’s because something unforeseen happens – whether it’s falling ill, having an accident, or even extending their holiday due to a delayed flight. In such cases, you can count any days past the 31-day limit towards the total letting days.
In cases where holidaymakers simply refuse to leave the property, you will need to evict the guests. Going through the process of evicting someone from your property can be pretty stressful and costly. But as a CIA customer, you can access our Legal Helpline and get legal advice 24 hours a day, 365 days a year. We can guide you through the process and provide some clarity during an already difficult time.
Fire regulations for holiday lets
Fire safety is extremely important, especially when it comes to protecting your guests. It’s important that you are aware of the fire safety regulations for holiday lets and take appropriate steps to protect your property and guests.
As the landlord, you have a legal responsibility to carry out a fire risk assessment of your holiday let and to review it at least once a year. A fire risk assessment is key for fire prevention, as it helps to establish the potential fire hazards and risks in the premises and any steps you need to take to reduce or control them. For further guidance on carrying out a fire risk assessment, read the HMRC guide on completing a fire safety risk assessment for people responsible for sleeping accommodation.
Of course, smoke detectors are an obvious must, but it’s also worth installing fire doors, fire extinguishers and a fire blanket to really safeguard your guests. Remember, fire safety features and equipment will need to be regularly checked and tested. 75% of fire doors fail to meet safety standards, so it’s important to make sure that any features installed are fit for purpose.
Many holiday homes have log burners or open fires. After all, nothing beats returning to the crackle of an open-log fire after a long day of exploring. Insurers will usually insist that you have the chimney swept at least once a year. It’s also crucial to leave clear instructions on how to safely use the fire and what to do in the event of a fire or on hearing an alarm. What’s more, every upholstered item in the property that you provide for guests to use will need to have a certain level of fire resistance and be suitably labelled in accordance with Furniture and Furnishings (Fire) (Safety) Regulations 1988.
Gas Safety certificate
If you have any gas appliances at your holiday let (whether they’re mains gas or LPG gas), you have a legal responsibility to ensure they are installed correctly and checked and signed off by a registered Gas Safe Engineer once a year. You must also leave a valid CP12 certificate (landlord’s gas safety certificate) at the property for guests to see. Read our guide to learn more about the certificates landlords need to provide.
Carbon monoxide alarm
Holiday let owners must also install carbon monoxide alarms in any rooms containing gas appliances, oil appliances, or a solid fuel burner, such as a log burner or open fire. Head here to learn more about following the safety regulations regarding carbon monoxide alarms.
Is planning permission required for holiday lets?
Before you buy a holiday home, you need to establish whether you require planning permission. Usually, as long as the property use falls within the same ‘use class’, you will not require planning permission for a holiday let. In other words, if you’re planning on buying an existing holiday property and letting it for the purpose of holiday stays, it’s unlikely that you’ll need planning permission.
If you would like to make any changes to the structure of the building itself, however, you will need planning permission. Likewise, if you would like to convert your home or an outbuilding or perhaps even build a holiday let on unused land, you may require planning permission. Though, whether you require planning permission or prior approval will depend on the following:
- Mortgage letting restrictions
- Commercial letting clauses
- The use class of the property
- The size of the property
In order to discover the existing and planning use class of the property, find your local planning authority and contact them for further details. Before you apply for planning permission, it’s a good idea to seek advice from a building expert. That way, you can get a rough idea of whether your plans will be approved. Not to mention, doing so will hopefully help you avoid a potential dispute with neighbours over building work.
Where to buy a holiday home UK?
Sure, location plays a part in buying a buy-to-let property. But location is everything when it comes to holiday lets! A buy-to-let landlord would typically invest in a location that is close to home, as it’s much easier to manage the property and resolve any potential maintenance issues. However, choosing a property that is only a stone’s throw away may not be the best strategy when it comes to renting out a holiday home, and for good reason.
Let’s face it, not every postcode is ideal for setting up a holiday home, as certain areas will have higher demand than others. Few of us would jump at the chance to holiday in a town where there are few attractions. In fact, most of the popular destinations for holiday homes in the UK tend to be anywhere close to the sea or a national park. Similarly, areas with outstanding natural beauty that make your heart beat just that little bit faster can be a winner too.
In fact, such regions usually have the highest occupancy rates for holiday homes. Take the peaceful landscape of North York Moors for example – landlords with holiday homes in this region can expect an average annual occupancy rate of around 78.4%. Likewise, landlords with holiday lets in Cumbria & the Lake District can see occupancy rates of up to 80.2%.
A recent survey revealed that the number one desired domestic holiday destination for Brits is the Scottish Highlands, with 15% of respondents saying they were planning a trip to explore the breathtaking white beaches and lush glens of this mountainous region. The Scottish Highlands were closely followed by Cornwall and the Lake District, with North Wales and Edinborough rounding out the top five desired domestic tourist destinations.
In 2021, the top three earning locations for holiday let landlords were Dorset, the Cotswolds and the Peak District, with Devon and Somerset rounding out the top five. Landlords with four-bedroom properties in these hotspots took home an average of £34,100.60.
So, if you want to know how to set up a rental property and generate a steady stream of bookings throughout the year, it’s important to think long and hard about the location. Simply doing a bit of research on the potential location of your holiday home will give your holiday let business a fighting chance at success.
What to put in a holiday let?
Generally, landlords are expected to provide accommodation that is decorated to a high standard and kitted out with everything a person would need for a stay away from home. Remember, a holiday home is a little bigger than a hotel room. This means you have the freedom to fill the space with more furniture and essentials. With this in mind, you’re probably wondering what to put in a holiday let?
Holiday homes can live or die based on how they are decorated and furnished. There is a fine balance between having an interior that caters to the merest whim and offering simple home comforts. You don’t need to provide anything too flashy. But at a minimum, you will need to provide guests with everyday, high-use essentials, such as comfy sofas and beds, a dining area, a washing machine and dryer, and a private bathroom.
Of course, there are extra touches that can really increase the booking potential of your holiday home – be it a hot tub, a log burner, a deep bath, or dimmer switches. Although these features aren’t necessary, they could ultimately be the difference between securing repeat bookings and guests finding somewhere else to stay the following year. Not to mention, adding luxuries could increase your revenue by up to 66%.
When it comes to furnishing the property, it pays dividends to think about who will be staying in your holiday let and how it will be used. After all, you want to maximise your property’s booking potential by choosing furniture that will cater to your guests’ specific needs and comfort.
If you’re looking to attract families, for example, it’s sensible to choose furnishings that are child friendly. Furniture and decor that is wipeable and resilient are sensible choices. Plus, this means less stress for parents and less cleaning up for you. On top of that, leather and velvet materials that have undergone a stain-repellent treatment have been touted as the real kingpins of fabrics. They are easy to wipe off and keep dirt at the surface. Not to mention, they add a touch of luxury and instantly upgrade any interior space.
Do I pay council tax on a holiday let?
As with any other business venture, you need to consider your outgoings as well as your potential earnings. You’re probably wondering whether you need to pay council tax on a holiday let. The short answer is no. You only need to pay council tax on a holiday let if you use it mainly as a second home. In other words, you do not need to pay council tax on a holiday let that is primarily being used commercially, and not personally. However, you will need to register your holiday let for business rates if your property is available for short-term letting for a minimum period totalling 140 days per year.
Although business rates are similar to council tax, business rates are charged to non-domestic properties such as holiday lets. But similarly to council tax, business rates are also used to fund local services. Business rates are worked out based on your property’s rateable value. This is calculated by the Valuation Office based on its open market value on the 1st of April 2015. In order to determine the business rates for your holiday home, you’ll need to use the relevant multiplier for your property’s rateable value, provided by your local council.
Note that business rates can vary depending on where your holiday let is based. If your holiday let is located in Wales or Scotland and is both available to let for at least 140 days and actually let for a minimum period totalling 70 days a year, you will have to pay business rates.
Protect your investment
It’s fair to say that renting out a property on a short-term basis to guests comes with greater risk, as your property will be left unoccupied for periods of time. This means that theft and property damage is much more likely.
If you’re looking to protect your investment, standard home insurance just won’t cut it. While the specialist cover may not be a legal requirement, it makes sense to protect your property and make sure you aren’t left out of pocket with a comprehensive UK holiday home insurance policy. Plus, if you’re planning on getting a mortgage to fund your investment, the lender will likely insist that you take out specialist cover.
Understandably, you may be wondering how much does holiday let insurance cost? Well, it’s difficult to provide an exact answer as the cost of your policy will depend on your specific circumstances. Whilst we can’t provide a clear-cut answer, we can help you find the best deal on the market.
At CIA Landlords, we compare quotes and underwrite policies at exclusive rates that won’t be found anywhere else. So, what are you waiting for? Contact us or get a quote today. We look forward to chatting with you soon!
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