The grey area between holiday let and second home

[WoldsWay]

Good morning all

Uninitiated newbie here! I've read a few threads on the forum in recent weeks - thanks for sharing some really useful info.

We have what I think is a pretty common dilemma on our hands.

We recently purchased a modest little cottage on the edge of the Wolds and near the sea that we (wife, 2 young kids and I) wish to use for a couple of weeks and a few weekends a year - it's 45 mins' drive from us so near enough to use spontaneously. This is the primary reason for getting the cottage, to be clear.

We would also like to let close family and friends use it without charge.

After that, we were thinking of letting it out to people we didn't know, possibly by simple referral through social networks (and therefore probably on 4/5 weeks a year) or by listing on a booking site (and therefore assume perhaps up to 15 weeks a year and maximise peak period returns).

From what I can see, we should apply for Business rates rather than council tax regardless of which path we choose for additional rentals.

My request is this - please could you let me know your thoughts on whether we develop a legit, fully registered lettings business and declare everything as such or if we should just let friends of friends use it?

My wife doesn't work due to ill health but is happy and quite excited about the prospect of marketing the property, I am a higher rate tax payer and we would like to get some return but it is not an absolute must - the property is nice but small/modest, and not a burden financially.

I'm undecided because it feels like we're unlikely to make more than £2,500 in gross rental (and therefore not liable to income tax on it from what I read).

I want to make sure we don't fall foul of the tax man/authorities but it's hard to determine where the line falls.

This may be familiar to some on this forum, if it sounds like we're not sure what we're doing, that'd be right!!

Thanks

Kevin

[Nemo]

Ok well any income earned, whether from friends, family or strangers has to be declared, but I don't think you need me to spell that out.

If you're going to advertise it; it needs to be available for 140 days or more and then actually let for 70 days or more, in which case you can apply for business rates and in turn small business rate relief until it's ultimately withdrawn. https://www.gov.uk/introduction-to-busi ... ommodation

https://www.gov.uk/apply-for-business-r ... ate-relief

If you don't fit the above criteria then it's not eligible for business rates - you will pay Council Tax instead.

If you want to get favourable tax treatment for your costs it needs to fulfill a furnished holiday let for HMRC purposes and filled in on a self assessment. Let for at least for 105 days a year. More details here: https://www.gov.uk/government/publicati ... tings-2015

As your wife is not working then it sounds like an ideal business for her to run from home, declare as her income and therefore not pay higher rate tax on. However I am not an accountant and you must get specialist advice if you go down this route.

Ensure that if you go the rental route, you embrace offering a nice property, in a professional manner and be prepared for all the issues that taking paying guests brings. For most of us here, it's a business; we're not hobby letters and take the business of supplying people with a dream holiday very seriously indeed.

Letting family and friends use it for free? Hmm, be prepared for damage and people not taking care because they have absolutely no investment in the property. Not a good recipe to combine with taking paying guests who will expect a high standard.

Finally, if you want it for yourselves, then ensure you book out your time in advance; you may well find that once other people hear about it, they will get in before you and suddenly you don't get first pick for your chosen dates anymore.

Lots to think about. I feel you need to decide what you want from the property and what your wife wants, if she wants to run a business. It's not a hobby business despite what some may say - it can be very stressful if things go wrong and someone has paid you lots of money to enjoy their holiday. Don't enter this business without fully understanding the consequences. Here endeth the lesson and welcome!

[Bunny]

Excellent advice and help from Nemo. I would just add that if you only anticipate taking £2500.00 in gross rental, and you don't need the income, then I would really question whether it was worth it. There will be additional expenses by renting out the property that you would not otherwise incur and you may well end up running at a loss, for example, an annual gas safety inspection/certificate. Coupled with all the extra admin and annual form filling etc, I personally wouldn't bother doing it for so little return.

Nemo is right about allowing friends and family stay too. They can be the worst guests and it can be very awkward when things get damaged.

Good luck with whatever you decide.

[SusanMay]

Hi,

I echo that it's good advice above.

We like to stay in our cottage quite often at weekends and one thng worth thinking about which is a drawback of renting is the amount of effort that is required before you can lock up and go after you've stayed there. Changing all the beds, vacuuming, cleaning bathroom etc and removing all your personal stuff so that it is ready for the next booking seems to take up a fair bit of our Sunday. We also may be busy on Saturday dealing with little things which the cleaners might not have spotted e.g loose cupboard knobs, lightbulbs, leaking kettles and so on. Stuff you wouldn't always feel you had to attend to urgently if you didn't have paying guests coming. Not to mention the time spent on arrival putting things back into their "rightful" positions after your last guests have moved them all around! None of it is a big deal but it may put a bit of a dampner on thoughts of that spontaneous visit...

It doesn't sound like you would be eligible for business rates unless you rented out for more days than you are currently thinking. One advantage (probably the only) of council tax rather than business rates is you can still use the domestic rubbish collection service.

Good luck. It is lovely to be able to jump in your car and head on down to the seaside for the weekend.

[Hells Bells]

We're off to our place in France in a couple of weeks time for our 'maintenance' week. We make sure nothing major gets in the way, but you can never tell. We spent one skiing trip sorting a new dishwasher and it took most of the holiday by the time we'd waited for a repair man to decide it was too expensive to repair, found a new one had it delivered and installed. We'd obviously been out on the slopes in betweeen, but we never seem to get quite as much skiing done as we would like.

[ianh100]

I would agree with most of the comments here, we use our place frequently but do rent out for more than 120 nights so get business rates current with a 100% rebate. I would like to correct SusanMay on refuse, if you let the property commercially you must pay for refuse collection for the times of year you commercially let even if you pay council tax as it is trade refuse. (That is the case in Dorset anyway).

We are in a similar financial situation and just declare all letting income in my wife's name, this is allowed by HMRC.

I agree that when using it yourself you have to leave it ready for guests which takes a lot of effort. I think you really need to decide if you will furnish and manage it for letting or for you own use, there is quite a difference.

I would agree with others that if you are only likely to gross £2500 it probably isn't worth it.

[ianh100]

I would agree with most of the comments here, we use our place frequently but do rent out for more than 120 nights so get business rates current with a 100% rebate. I would like to correct SusanMay on refuse, if you let the property commercially you must pay for refuse collection for the times of year you commercially let even if you pay council tax as it is trade refuse. (That is the case in Dorset anyway).

We are in a similar financial situation and just declare all letting income in my wife's name, this is allowed by HMRC.

I agree that when using it yourself you have to leave it ready for guests which takes a lot of effort. I think you really need to decide if you will furnish and manage it for letting or for you own use, there is quite a difference.

I would agree with others that if you are only likely to gross £2500 it probably isn't worth it.

[WoldsWay]

Firstly thank you all for the responses.

It seems to me that we either need to commit to sweating the asset or simply not doing anything re marketing the property.
No half measures if you like.

Re family and friends - I hear what you are saying and appreciate the advice but I have always wanted, almost as a point of principle, to provide this without charge for friends and family who have in some way helped us out in however small a way that may have been. We will just have to make it clear that we'd like them to leave the place as they found it (or else!).

We bought the place pretty much fully furnished, and the previous owners have kindly left everything pretty much, including guides on how to use everything, a vistiors' guide and much, much more. As such, there is very little we need to do to make it ready for paying visitors if we see fit to do so.

Thanks again everyone

[greenbarn]

We will just have to make it clear that we'd like them to leave the place as they found it (or else!).

They won't leave it in suitable condition for paying guests, and it will need attention shortly before paying guests arrive. Standards of cleanliness need to be a league above normal domestic levels - reckon on 3 to 4 hours cleaning time for a typical two bedroom house as a rough guide. Are you planning to do the cleaning, or employ somebody local? Ditto for dealing with "emergencies" (bearing in mind that for a typical guest, the kettle dying is an emergency, the heating/hot water packing up is a disaster, and the TV or wifi failing is a major disaster!)

If you're going to let it commercially you'll also need to check such things as a fire risk assessment, and the resulting need to install suitable alarms and some form of emergency lighting, and you'll also need suitable liability cover on your insurance.

Letting can be a major headache, a lot of work both admin and menial, and a lot of stress - it's also great when you're meeting or getting feedback from guests who say something that makes the effort worthwhile and gives you a buzz - but without that buzz, it's mainly unrewarding graft.
If you reckon you might gross £2.5k in rentals, by the time you've taken out the cleaning, laundry, energy, maintenance & depreciation, insurance, advertising and admin costs you might possibly see £1.5k, or a lot more might get wiped out because you've got guests arriving, the cooker or tv's just packed up and it's got to be replaced today, rather than waiting a couple of weeks to get it fixed or replaced at your leisure and convenience. The guest is number one priority, and what they're buying is a dream.

Your main goal is to have a place you can go as and when you want, and a place you can offer to friends and family. Neither of those sit well with running it as a business - ie letting it - but are great reasons for having the property and enjoying it to the full rather than it being a cloud over your heads.

Final thought - if you choose not to let commercially, but change your minds in a year or so, it will be very much easier, particularly with familiarity with the property, to start letting. Conversely, if you let from the outset and decide later it's not for you, you're quite likely to be in a position with existing bookings to honour, and getting out could be stressful.

Whatever you decide, you'll get lots of support here!

[anya752000]

I echo the other posters.

If you are only expecting to let out for a few weeks and receive 2500 gross income it is worth sitting down and working out all of your costs - you may be surprised and I imagine you will not take much profit from that.

Good luck whatever you choose.

[Robin S]

+1 to other posts. As a minimum charge cleaning or at least have it professionally cleaned at your cost prior to paying guest's arrival.