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Articles:
Holiday letting as a business
JS May 2007
Imagine running
your own holiday home. By following a few
simple steps, with the help of Enhanced Wealth,
you could run a holiday letting business from
the comfort of your own armchair. There has
never been a better time to consider generating
income from your second home in this way. A
growing number of people are realising the huge
potential in
holiday letting. Around four
million people each year will let out a
holiday
home or apartment whilst over two hundred
thousand people own a second home. And it is
easy to see why so much interest has been shown
in this area. As well as the potential for
excellent returns on your investment, you can
take advantage of a number of tax incentives.
With any large
investment there are a number of questions you
should consider. Enhanced Wealth will take you
through any concerns and ensure that you feel
ready and confident as you begin your holiday
letting business.
What are the
benefits of starting a holiday letting business?
A holiday
letting business can generate rent of six
hundred pound per week during peak season which
could pay the mortgage cost for a whole year in
a matter of months. Most importantly, holiday
letting is a great way to earn some extra money
without losing out on valuable free time. There
is no surprise to find so many people wanting to
take advantage of a holiday let business. So
long as you have owned your business for two or
more years you should only pay a quarter of the
normal capital gains tax. For most taxpayers,
they would pay ten percent, instead of forty
percent on any gains over their annual exemption
amount. By contrast, normal residential lets
qualify for the less generous non-business taper
relief, with gains fully taxed on properties
owned for three years or less, and tax cut by
just two-fifths after ten years.
What are the
differences between a
holiday let mortgage and a
mortgage on other standard rented property?
There are a
number of differences you must be aware of when
looking for a holiday let mortgage. Most
importantly, if you have fully furnished
accommodation that you rent out as a holiday
home, you can take advantage of a number of tax
allowances. It must be remembered that when
using your property as a holiday letting
business, it must be in the United Kingdom.
Your home must
be available to renting as a holiday letting
business for one hundred and forty days a year
and crucially, you must let out the property as
a holiday home for at least seventy days of the
year.
That means it
has to be at full rental cost and not just a
cheap holiday home for friends and family. Once
your holiday letting business is up and running
you can take full advantage of capital allowance
rather than just your standard cost for
maintenance and damage to property. All you have
to do is fill in your self assessment form and
you can make allowances for the cost of all
furnishings and furniture, any equipment such as
refrigerator, washing machines, repairs and
maintenance. It does not end here. Even
decorating your property could be counted as an
expense. You can make allowances for everyday
costs like heating and light to the running
costs of letting agents and management fees.
Cleaning costs, insurance and interest on
mortgage payments can be taken into account. It
is easy to see just how valuable your property
can become when it is used as a holiday letting
business.
Where should
you buy your holiday letting business?
Many people
mistakenly assume they must buy a property
overlooking the sea or in some secluded
countryside area. However, there is huge growth
in property in places like
York, Bath, Stratford
and
Edinburgh, as well as the more well known
cottages, in places like the Cotswolds. It is
also worth considering that a holiday letting
property in the city could be a safe and viable
alternative, as you can generate income during
quiet times of the year.
Can I let out
my house as normal during the rest of the year?
Yes, there are
further advantages to holiday letting as a
business worth considering. Provided you let out
your property for at least 140 days of the year
and actual letting must amount to 70 days, there
is nothing to stop you letting your property out
as a normal rented accommodation for the
remaining five months, with no further
restrictions.
What happens
if you make a loss on your holiday letting
business?
If you make a
loss on your property you can also offset that
loss against your other income and not just the
property income which will reduce your tax bill.
You can also carry the loss forward and use this
to help with further letting profits. You can
also take advantage of capital gains tax relief
when you sell your holiday letting property. For
example, the 'business asset roll over relief.'
Which means, that if you invest within three
years in another holiday letting property, you
can defer payment of capital gains tax until you
dispose of those new assets.
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