August's latest properties
Expected Returns
Your return on your property will obviously depend on a number of factors:- The income generated through
- The number of bookings achieved across the year
- The price you are able to charge in season and out of season
- The costs you have to pay out eg
- Set up and ongoing costs
- Mortgage costs
Your income will also be affected if you are VAT registered.
Income
The average number of weeks booked in England for a self catering property is about 20-22. How your property will perform against this will depend on its location, attractiveness to holiday makers and the success of your marketing.
The right property in the right location can outperform the market average and, with the right marketing, can do so from the first year. Further, if you are providing a good quality product you should expect income to build up over time as your property becomes known about and repeat guests return (though they may expect a small discount to do so!).
The actual return you get will depend on the number of weeks booked (peak and off peak), the number of short breaks booked, and the average cost of each type of booking.
If we assume that the property is a 2 bedroom cottage in a good location then the average price per booking might be as follows:
- Peak week £800
- Off peak week £450
- Short Break £300
If your property achieves 6 peak weeks, 12 off peak weeks and 6 short breaks (giving about 22 weeks of occupancy) and achieves the above average incomes then total income on the property will be £12,000.
For those who are VAT registered then this will need to be taken into account (See articles on VAT for further information).
Costs
Costs come in two main areas, capital allowances and running costs. These affect income in two different ways.
Capital Allowances Set up costs (called ‘capital allowances' by the taxman)
For properties qualifying as furnished holiday accommodation set up costs (such as purchasing of furniture, white goods etc) can be offset against income over time, on a reducing basis. In the first year 40% of any costs can be claimed for. Thereafter, 25% of any remaining balance can be claimed.
For example, if you spend £5,000 on furnishings then in your first year you can offset £2,000 against your income. So, for example, if you have £12,000 of income only £10,000 (£12,000 less £2,000) will attract tax.
In the following year 25% of the remaining balance of £3,000 e.g. £750, can be claimed for.
Capital allowances actually extend over the life of the property if you are buying new items, or replacing worn out ones, it is not just in the set up phase that these are claimable.
For those who are VAT registered, some VAT charges may also be reclaimable (See articles on VAT for further information).
Running costs
The general running costs of the property can also be claimed for and offset against income. These include items such as:
- mortgage interest payments (but not capital repayments)
- marketing costs (including agency fees)
- changeover costs
- utilities bills
- insurance premiums
They are offset against income in the same way as capital allowances but there is no annual apportionment.
For example, if you have a property earning income of £12,000, with £6,000 of claimable running costs and you are claiming £2,000 of capital allowances then the net income liable for income tax would be £4,000.
For those who are VAT registered, some VAT charges may also be reclaimable (See articles on VAT for further information).
Tax
You will pay tax on net income at your highest rate of tax, subject to your other income and allowances etc. If you make a loss in a year, such as when you are investing heavily in getting the property ready, then this loss can be offset against your other income to reduce your overall tax bill.
Letting of furnished holiday accommodation must also be registered as a business with HM Revenue and Customs within three months and is liable to class 2 national insurance (subject to usual exemptions, exceptions etc).
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To ensure that you get the most from your property, taking into account your individual circumstances and the latest legislation, we advise that anyone interested in buying and running a property for holiday rental should consult a qualified adviser.