Are you considering a home with an income?
Holiday lets provide excellent ‘homes with income’ and great lifestyle opportunities for people looking to move to the countryside - the properties usually come with acreage giving the owners the chance to keep animals, grow vegetables and organic farm. Running a smallholding has flown higher up most purchaser’s wish lists it seems. Being at least semi self-sufficient is extremely attractive to those moving from the big cities who want to edge away from the big supermarket chains and learn a new skill.
The income from the self-catering business usually pays for the running cost of the property and is very tax efficient - living expenses including motoring costs, utilities and other expenses can be run through the accounts.
Stamp duty for these types of property is favourable - they are classed as non-residential properties meaning they attract a lower stamp duty rate.
Non-residential property up to £150,000 has a nil rating. Between £150,000 and £250,000 has a 2% rating. Anything above £250,000 is charged at 5% but there are circumstances where this can be reduced by taking further advice from accountancy practices who specialise in stamp duty. Therefore even if you buy a holiday lettings business with a main house worth £3million you will only pay 5% stamp duty.
We have seen in 2016 a renaissance of financing for properties of this type - the cap for financing is now increasing making the purchase of holiday letting businesses more viable. In the downturn it was mainly cash buyers who purchased holiday lettings businesses.
Pitfalls to avoid when buying a holiday let business
The major consideration when buying a holiday lettings business such as a lodge park or campsite is location. The proximity of the coast is always a major factor but distance from the larger conurbations is important for customers who trade throughout the year. It’s important also to look into the previous owner’s accounts – if they ran a successful business ask as many questions as you can and try if you can to keep an open dialogue with them when you take over the business so that you feel you can ask for their wisdom.
Is it better to buy an already operating business or create your own from scratch?
It is better to buy an operating business as there is an established trade and this can take up to 2-3 years to establish. It is better to improve the standard of the holiday letting cottages than to start from scratch as the build cost on holiday letting cottages is similar to residential development and can be uneconomic due to the level of returns.
What income do you need from a holiday let business to sustain a family life?
Most properties of this type are sold to couples with children that have already flown the nest. Most businesses trade under the VAT level which is currently £83,000 and the overheads for businesses of this type are limited. Major expenses are business rates, utilities and advertising. Anyone looking to run a business of this type would look at renewable energy sources to cut their costs.
The most popular county is Dorset due to its proximity to London and the Home Counties for customers. Alternatively the Peak District is also a honeypot location due to being the most visited National Park in the country.
What are the market projections for holiday let businesses. Is now a good time to be looking?
2015 was a good year, but 2016 was an excellent year for sales of holiday letting businesses - 2017 seems to be carrying on and perhaps superseding the same trend.
The weak pound will undoubtedly mean that a UK holidays are more attractive both for Brits and those from overseas. It’s undeniable that holidaymakers globally are looking for more ‘bang for their buck’. Cheap international flights into Exeter for example from France, Spain, The Netherlands, Italy and Portugal via FlyBe mean that the south west of the UK is quickly and easily accessible from a host of European countries. In addition Visit Britain have estimated that inbound visitors to the UK are going to increase by 4 per cent this year when compared with 2016.
Humberts have been specialising in properties of this type for over 20 years and have a proven track record and a national reputation for leisure properties. To contact Stephen Richards please email Stephen.Richards@humberts.com