Investing in a holiday let can be more tax-efficient than buy-to-lets

Since April 2016, buy-to-let property investments have become far less tax efficient than holiday lets. Experts say this is only set to continue, so if you’re looking for a tax efficient alternative to a buy-to-let property, you may want to consider investing in a luxury lodge from The Retreat.

Why are buy-to-let properties no longer tax efficient?

A few years ago, savvy investors would opt for a buy-to-let property and manage to avoid being heavily taxed, making optimal profit on their purchase. However, to the dismay of Britain’s 2 million landlords, the UK government announced a 3% stamp duty surcharge for anyone buying a second property. This was on top of plans to curb mortgage interest relief for landlords and scrapping the wear and tear 10% tax allowance.

Why are holiday lets the tax efficient alternative to buy-to-let?

Although significant changes have been introduced into the buy-to-let tax allowance regulations, the furnished holiday lettings tax rules remain the same. Therefore, the luxury lodges at The Retreat are exempt from the updated tax laws and are emerging as the modern tax-efficient alternative to buy-to-let purchases. Ultimately, if you buy a holiday let property, such as a luxury lodge at The Retreat, and decide to let it out for other people to use for holidays, all mortgage interest costs remain deductible from any income for tax purposes. What’s more, a holiday let property is classed as a business asset and therefore when selling it you only need to pay 10% tax for capital gains, compared to 20% for Buy to let sales.

Why The Retreat?

North Devon is a popular holiday destination but is still being established in terms of what it can offer potential investors for holiday lets. A holiday park provides holiday makers with a variety of on-site facilities. For example, The Retreat at Romansleigh Park has facilities such as a club bar, games room and children’s play area. Open all year round, its location, facilities and luxurious accommodation makes it more likely for the lodge owner to enjoy a steady income – in fact its guaranteed at 8% pa for the first 3 years. The chart (below) illustrates how a premium lodge investment of £250,000 would return a guaranteed total of £60,000 in the first 3 year period (www.theretreatdevon.co.uk). Table2

 An Investor’s View

One owner at The Retreat holiday lodge development in Romansleigh summed up why they switched to investing in holiday lets: “I looked at holiday lets when my buy to let tenants kept failing on their rental payments. I was also spending more and more time and money on the upkeep of my portfolio. “ “The clincher was when The Retreat guaranteed me an annual 8% return on investment for the next 3 years, with nothing to worry about over tenant occupancy, maintenance costs and agent contracts.  Now I make more money from my lodge at The Retreat and even get 6 free weeks holiday there every year!”  Mr A, Essex

DID YOU KNOW? A Holiday let could be TWICE as profitable as a Buy to let investment

 This basic comparison shows the costs and returns of a Holiday Let at The Retreat compared to a permanently-occupied Buy-to-Let property investment during the first 3 years of ownership:
COMPARISON Initial Investment Estimated Purchase Fees Including Stamp Duty Running Costs Average Annual Return Annual Profit Number of free holiday weeks per year
Buy to Let Holiday Lodge at The Retreat  £175,000 Zero Zero 8%*  £14,000 Six
Buy to let Rental Property  £175,000  £8,125*  £1,045** 4.12%***  £6,832 None

Why not come and visit The Retreat?

Request a brochure and take a look at what our holiday lodges can offer you as an investor The Retreat will let your lodge for up to 48 weeks of the year and take care of all the management aspects, including all bookings, changeovers, cleaning, maintenance, repairs and even pay site fees and utility bills.

NOTES TO TABLE       

*Purchase fees based on median values provided by Money Advice Service https://www.moneyadviceservice.org.uk/en/articles/estimate-your-overall-buying-and-moving-costs **Running costs based on values provided by Property Investment Project, based on an annual turnaround of tenant and includes EPC, Gas Safety certificates, smoke alarms, insurance and tenant fees. Does not include time spent organising, property maintenance, redecorating or empty/void periods http://www.propertyinvestmentproject.co.uk/blog/financial-costs-of-being-a-landlord
EPC         £65
Gas Safety             £80
Smoke alarms       £30
Insurance              £150
Tenants Fees        £720 based on 8% of annual rent at £750
***Average UK rental yield based on The Telegraph report. http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11113718/Britains-highest-yields-the-best-10-postcodes-for-buy-to-let.html