You Worked Hard For Your Second Home So Why On Earth Would You Rent It Out?
When you’re building a business or a career there are milestones of achievement- turning over £1m, heading the department, employing 10 people and often what was an ambitious and hard fought for goal with hindsight seems like a small first step. £1m turnover gets to £10m, you make partner, set up your own practice or employ 100 people. The rewards for success can also follow a similar path- holidays go from 2 week packages to high end cruises, battered estate cars become sleek new Range Rovers and sailing dinghies morph into Sunseekers.
Whether you are a self improvement fanatic or just a practical business person who hates that mumbo jumbo it’s an indisputable fact that success comes from setting goals and visualising their achievement- imagine being welcomed aboard that cruise liner or announcing to the staff that you’ve gone through £10m turnover and that image puts your mind in the right place and makes it more likely to happen.
What we often don’t realise until it’s too late is that all the fun is in the challenge and the journey, often when you reach the goal and buy the reward it’s a bit of an anticlimax and this can be particularly true when you finally sell the business or retire early with the big lump sum. One of my most memorable meetings was with a client who had sold his business for many millions talking about his new life: ‘When being on holiday is your job It’s a rubbish job!’
So it is that I frequently find myself sitting down with owners of fabulous second homes in Sandbanks or other locations. They often own them outright, they don’t need to rent them out and the yield looks pretty weak compared to the big capital investment so why are they even talking to me? It turns out for quite a few very good reasons so let’s take a look at some of them:
1. Support your local economy
Lock up second homes are the enemy of any location with the potential to damage local services and businesses. Holiday lets bring business, expenditure & jobs to Cornwall- it’s roughly the equivalent of one full time job per 10 houses for us and that doesn’t include restaurant & shop trade etc
2. You still know the value of money
We’ve all been there, doesn’t matter what you can afford, it still hurts when someone quotes £400 to trim a hedge or a small bottle of mineral water is £6.50 from the minibar. There’s a long string of people queuing up to charge you for something to do with your second home and running it as a business will provide income to cover expenses, make them tax deductible and crucially produce a change in the mindset of suppliers who will understand they need to be competitive.
3. Stop paying council tax!
A qualifying holiday let will be business rated and if it’s your only one you’ll get small business rate relief at 100% and pay nothing. There are conditions to meet but they are not particularly onerous, more info below.
4.Tax relief on pretty much everything
Capital allowance rules let you claim full tax relief on purchases up to £200,000 a year and if you don’t have the income to claim against it’s carried forward indefinitely until you do so that fantastic kitchen or designer sofa just got much cheaper.
5. Capital gains tax reduction
This can be worth many times more than the rent, when you sell that second home you’ll pay just 10% tax on the gain instead of the usual 28%#
6. Rollover relief
When you sell a furnished holiday let and buy another the gain can be ‘rolled over’ into the new property so the tax is not payable at that point provided the new property is of equal or greater value. Note that capital gains tax does not apply after death so if you never sell the property you never pay the tax.
7. Retrospective Benefit- Are You Sitting On A Gain?
This is a really big one- in certain circumstances operating as a holiday let for at least a full tax year the entire gain may qualify for entrepreneurs relief even if the place has been a second home for a long period.
8. Services for you and your private guests
If you are welcoming select guests it’ll be essential to have a really good management team in place delivering a premium service which of course means they will be there for you and your private guests too- freshly squeezed juice in the fridge? champagne on ice? Whatever you need will be managed and you’re guaranteed a hassle free arrival.
To get these benefits you have to be available to let for about 7 months of the year but you only need to actually let for 15 weeks leaving you with up to 37 to use for yourself which is probably more than you use anyway. There is no requirement for the lets to be at any particular time so you can have all the school holidays yourself if you want.
Everybody’s situation is slightly different and there’s often companies, trusts or other complications so you should, of course, talk to a suitably qualified person about your particular circumstances but the opportunity is there to get a lot more out of your investment and enjoy it more too.