Conditions are ideal for the UK’s furnished holiday let (FHL) market to surge in 2020, said property agency Spot Blue International Property in November, adding that the sector has become more popular in recent years thanks to the effects of Brexit and the increasingly regulated and tax-unfriendly buy-to-let market.
Classified as a commercial operation means FHLs are not subject to the same tax rules as typical properties rented out privately in the residential sector. In recent years, traditional buy-to-let landlords have been hit by higher stamp duty, tighter lending conditions and diminishing mortgage and tax relief benefits.
Spooked by today’s unsettled political climate and fears that a buy-to-let investment could become more of a financial burden than an asset, in particular for part-time landlords, investors are searching for other property sectors where they can protect their capital and grow their pension pot. For many, an FHL property, purchased with the guidance of a financial advisor, could be an attractive alternative.
"Buy-to-lets are a perennial political football and under current legislation they’ve lost some of their shine, not helped by the slow-down in the UK housing market,” said Mr Walker at Spot Blue International Property. “And depending on the results of the imminent election, there could be the threat of a right-to-buy scheme disrupting the market.
“Meanwhile, the upturn in UK tourism and staycations, fanned by the consequences of Brexit, is laying the foundations for an exciting and buoyant FHL market. An increasing number of new parks and developments are coming to market around the country, with developers careful to ensure their properties tick all the requirements for a successful FHL property.”
Key benefits of FHLs, which are run as businesses, are that they come with capital allowances, which can be applied to furnishing the property, while most expenses associated with running the property are tax deductible. In addition, profit can be used for pension contributions, capital gains tax is low, and most will qualify for relief on business rates, while being exempt from council tax. To qualify as an FHL, a property must meet certain conditions governing furnishing and the minimum number of days it is made available for lets and physically occupied by paying guests each year.
“Others advantages are that mortgages are available for most FHLs, including for the newer modular homes,” added Mr Walker. “Not forgetting that developers offering new custom-built homes are using eco-friendly energy-saving materials and building methods.”
Spot Blue is promoting a range of FHL developments where qualifying buyers can choose between a three or five-year assured rental agreement. The developer, which is a pioneer of low carbon footprint building practices, is offering a seven per cent annual net return, with rental income paid quarterly. For investors with the appropriate financial status, this makes an appealing hands-off investment proposition.
One of these developments is located on the unspoilt coast of North Yorkshire, where new two-bedroom country lodges, which come fully furnished and access to on-site leisure amenities and the local beach, are available from £174,950. Three-bedroom options are also available.