It is important to set up a system to manage the holiday let with financial analysis to understand where the costs are and how best to manage them, while increasing the income.

An annual review will give a good oversight of the profit and loss, especially given the uneven pattern of income and costs compared to a long let property. Because holiday bookings are seasonal, you will receive a great deal of your income – between 40 and 45% in the July and August. Through the Autumn, income will gradually decline and then gradually increase again in the Spring as demand returns. This can put pressure on cashflow where fixed monthly costs exist all year round, so it is important to have a plan to address this.

Two key sets of rules will affect holiday home ownership – Furnished Holiday Lettings and Capital Gains Tax.

Furnished Holidays Lettings (FHL) attract a set of tax rules for properties which are made available for holiday lets for at least a certain number of days in the year, and actually booked for a minimum number of days in the year. There is a proposal in the Coalition’s 2011 Finance Bill that these numbers are increased from 140 days available to 210 days, and actually booked for 105 days instead of the current minimum of 70 days. If passed the legislation will come into law in 2012.

Furnished Holiday Lettings attract a number of tax breaks not available to standard AST lets, such as offsetting certain costs against personal tax allowances.

Capital Gains Tax (CGT) is payable on profit made from the sale of a holiday property, though again there are a number of situations where this can be deferred, so it is worth consulting an accountant or a financial advisor with specialist knowledge of second homes when investigating both FHL and CGT.

Another way to reduce costs could be to re-mortgage the holiday let. This is dependent on mortgage availability and current offers, but it may be worth keeping an eye on interest rates, especially if approaching the end of a fixed or discounted rate deal.