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At the end of summer 2021, ‘staycation’ is still the buzzword. ‘What’s really interesting about the staycation boom,’ says Stuart Marshall ‘is that it’s inspiring a huge surge in the number of holiday let companies that are being established. This is a trend that UK expat and foreign national investors need to take note of!’
What’s Happening with Holiday Let Incorporations?
Between January and June 2021, there were 1404 new holiday let companies established in the UK. ‘In the first six months of this year, the number of holiday let companies that have been set up is already an 83% increase from the number of holiday let incorporations in the whole of 2020, when the current staycation boom began. Compared to 2019, the number of 2021 holiday let incorporations is 119% higher.’
Where Should UK Expats and Foreign Nationals Be Looking?
‘Contrary to long-term lets, cities are to be avoided when looking for a long-term let. One area of particular interest in both the buy-to-let and the holiday let market is Wales. Wales has seen the biggest regional increase in the number of holiday let companies established – up 131% from the previous year. It’s not surprising given the incredible accessibility and growth of Welsh property in general. Not only is Wales blessed with idyllic landscapes and beaches, the average price of property in Wales is £188,000 meaning that it is far more accessible for investors than other popular holiday let locations, such as the South East where the average price of a property is £379,000.’
Why are Holiday Lets Being Incorporated in Companies?
As we know, buy-to-let properties in the UK are extremely popular – and for good reason. They are one of the most solid investment decisions you can make as a UK expat or foreign national. The rental yields can make good monthly returns while capital growth contributes to the long-term profitability of your investment. However, recent tax changes have meant that purchasing a buy-to-let property for an investment is not as profitable as it once was. This is due to the new legislation that means mortgage interest can no longer be offset against tax. Because of this new legislation, many UK expat buy-to-let landlords are choosing to put their investment property in a limited company. This way, they can offset the mortgage interest payments as a legitimate business expense.
Holiday lets are becoming more appealing to UK expat and foreign national investors though. For one, a holiday let does not need to be incorporated into a limited company to offset the mortgage interest against tax. This is because a furnished holiday property is considered a business so does not fall under the same punitive legislation that buy-to-let properties do.
So, if this is the case, why are holiday let owners still incorporating their properties in companies? The main reason to incorporate a holiday let in a company is because the owner will be taxed corporation tax of 19% instead of income tax of up to 45%. The other benefits of owning your holiday let in a company are broadly similar to owning a buy-to-let property in a limited company. These include the chance to offset inheritance tax and the opportunity to build a larger investment portfolio by using the profits from one property to purchase more through the company.
Holiday Let or Buy-to-Let?
‘The current strength of holiday lets is evident in the incredible growth of holiday let incorporations compared to buy-to-let incorporations. Buy-to-let incorporations grew at half the rate of holiday let incorporations. And, as mentioned above, there is good reason to incorporate a buy-to-let property as part of a limited company. This spectacular growth shows just how popular – and consequently, profitable – holiday lets are at the moment.’
‘When it comes to choosing whether to opt for a buy-to-let property or a holiday let, it will really depend on your investment goals. Talking to an expert – like our team at Liquid Expat Mortgages – will always be the best option in deciding which route to take on your investment journey as a UK expat or foreign national.’
‘Owning a holiday let could certainly be more profitable than a long-term let. This is because holiday lets can command higher prices – so much so that a week of renting a holiday let can earn as much as a month of renting a long-term let. At the minute, we’re seeing block bookings of holiday lets throughout the spring and summer, not only through 2021 but into 2022. Because of this, the national average rental yield for a holiday let is predicted to rise to 14% by 2022. Any rental yield above 7% for a long-term let is considered to be incredibly strong, with rental yields typically struggling to reach much higher than 10%. So, if managed correctly, holiday lets are an incredibly strong investment option for UK expats and foreign nationals.’
‘There are still downsides to consider though. Your holiday let must be available to let for 210 days a year and must be let for at least half of this time. Holiday lets will also require more work than a long-term let as you will have a property that requires constant attention. However, you will avoid the problems associated with problem tenants who can be difficult to evict. You will also be accountable for the bills in a holiday let, which is not the case with a long-term let.’
‘There are many considerations to be made but the enduring popularity of holiday lets at the moment is pushing many potential UK expat and foreign national investors towards this route, as a viable alternative to a long-term rental property. When purchased through a limited company and managed correctly, a holiday let can pay dividends for years to come.’
Liquid Expat Mortgages
Unit F2, Waterfold Business Park,
Bury BL9 7BR
Phone: 0161 871 1216
www.liquidexpatmortgages.com
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+44 161 633 5009
