When considering buying a holiday home, you need to decide on location, what type of home, when you want to buy and why you want one.
So, once you’ve decided where, what, when and why, it’s time to think about how.
The process of buying a holiday home is one that requires a lot of forethought and planning, but if you address all of the below points, you should be good to go!
Most people will buy a holiday home with a mortgage, but how you’re going to use your home determines which mortgage you need. It’s common belief that a buy-to-let mortgage is best, but this is not true.
If you don’t plan on letting the property out, a second home mortgage might be best for you. Beware though, you’ll need a large deposit – typically 35%.
If your holiday home is a business, you’ll need a specific holiday home mortgage, which isn’t available at most high street banks and is instead offered by specialist building societies. Lenders will expect proof that you can make a gross income of 125-130% of your mortgage payment, so you need to do some research on the local lettings market to know whether that’s realistic.
Council tax is lower on a second home and there are other tax benefits to a holiday let.
If you let out a furnished holiday home in the UK, your rental income may be treated differently for tax purposes from other rental income. To qualify, it must be:
- in the UK (or EEA)
- available for commercial letting to the public as holiday accommodation for at least 210 days a year
- commercially let as holiday accommodation for at least 105 days a year – the rent must be charged at market rate and not at cheap rates to friends and family
- a short-term letting of no more than 31 days*
*A property can be let for periods longer than 31 days in one stretch but none of these days will count towards the above test. This is known as ‘longer term occupation’. Where the total of all ‘longer term occupation’ is more than 155 days in the tax year, the property will not qualify as a furnished holiday letting.
Some tax advantages are that you can claim capital allowances and you can benefit from some favourable capital gains tax rules when you sell the property. Also, some expenses relating to the property can be taken into account to reduce your tax bill, such as letting agents’ fees, mortgage interest, insurance and council tax.
You must ensure that all paperwork is completed and stored safely to receive tax benefits and ensure you don’t encounter any problems down the line.
In order to complete the land and property pages, you must keep the following documents for six years after the tax year concerned:
- a note of all the rent you receive and the dates you rent out the property
- a record of your business expenses
- sales receipts, invoices and bank statements
Paying for a holiday letting agent or cleaning/maintenance company will cost you monthly and reduce your profit, but it can help you in the long run.
Although it’s not uncommon for an agent to take up to 25% from each rental, the guaranteed service and convenience of having someone close to the property, responding to any issues and maintaining the quality of the home is almost always worth it.
By having a professional service managing the property it ensures guests have a high-quality stay, meaning they’re more likely to return, refer friends and leave good reviews, helping you build a long-term business.
Don’t forget, it’s your responsibility to keep the property safe for paying guests, so any maintenance or cleanliness issues may come back to haunt you.
Don’t forget about insurance! Contents insurance, rental insurance and homeowners’ insurance all need to be considered.
How to buy a holiday home in Cornwall or Wales
Buying a holiday home is a good investment, whether it’s for yourself or as a business. From making family memories to generating income, the benefits of holiday home ownership are abundant.
With breathtaking views, striking architecture and state-of-the-art amenities, holiday homes like the Residences at Burn Coastal Retreat and Dylan Coastal Resort provide a perfect UK base for regular getaways to relax and spend quality time with your loved ones, along with fully managed holiday let opportunities.
The Residences offer a 12-month rental season which means you can sublet your Residence all year round, maximising your earning potential. However, a popular option is to sublet for selected weeks of the year.
For the number of weeks your Residence is occupied, you will receive 70% of the net rental income. It is understandable that purchasing a holiday home is a big investment decision, that’s why we work with leading personal and business finance providers to offer you advice on the finance options available and guarantee competitive rates on lending.
Learn more about The Residences.