Should You Buy a Holiday Home?

Added on October 9th 2019

We all dream of buying and owning a holiday home, maybe somewhere by the sea or in the back of beyond, or maybe a little pied-à-terre in a city…

The best things about owning a holiday home are that you have your own retreat for yourself and your family, you can earn some additional income from renting it to holidaymakers and you can pass the property on to your children or grandchildren.

It’s a big step, though, so you need to think a few things through.

The advantages

Beneficial tax arrangements

If you decide to let out your holiday home, HMRC will see it as a venture rather than an investment, which may mean discounts on council tax and mortgage interest relief.

To be eligible for these benefits, your property should be available for rent for 210 days out of the year and actually let out for 105 days. You can’t let the property out to one particular individual for more than 31 consecutive days within this period, either. You should get some financial and tax advice before you set out so you understand your obligations and rights.

You can get significant returns on your investment

If you have a property in a popular area and you take advantage of the peak seasons, you could easily make £1,000 per week during the busiest times. There’ll be downtimes as well, of course, but with clever marketing you can have people trickling in. You should be flexible and offer short-notice two and three-day stays, as well as accept well-behaved pets, especially if you’re in a rural area.

During vacant periods, you should decorate, do inspections, make repairs and maybe even relax there a bit yourself.

It may be your retirement home

Lots of people buy a holiday home in the area that they intend to retire in. You might even be able to retire mortgage-free and spend your golden years relaxed and worry-free. Plus, you may well have made friends in the area over the years so you’ll fit right in.

The disadvantages

You’ll need specialist insurance

If you’re letting the place out, you’ll need a special type of insurance that covers potential damage caused by guests and also extended void periods that may mean a dip in income. Some areas may be more expensive to insure a holiday home in, depending on factors like flooding, security and so on, but you must have it anyway.

Maintenance and repairs

You’ll need to clean the property in between lets, as well as make regular inspections and carry out any repairs that arise. If you’re working full-time or you live some distance away, then you’ll probably have to hire a cleaning service to do this for you, which will eat into your profits.

Stamp duty rises

In April 2016, stamp duty levels rose for people buying second and subsequent properties. The starting threshold for stamp duty also fell to £40,000 for second homes, so many holiday homes involve an extra 3% in stamp duty on top of the standard rate.

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