Chris Worthington’s Buy-to-let market overview: Short term letting

By Chris Worthington

The Buy-to-Let Market Overview Short-term Letting

This month (as at March 2020) the market overview will focus on a sector of the market that has been much in the news and is growing fast – short-term tenancies and holiday lets. This has been driven a flourishing staycation market, demand for short breaks and a continuing growth in inbound tourism.

A recent report from the UK Short-term Accommodation Association (STAA) highlighted the advantages for investors in short-term and holiday lets and people who rent out their own home for short periods.

• If your total annual rental income is less than £1,000 you do not have to declare it to HMRC. • You can earn up to £7,500 a year from renting out a room in your home for short periods without having to pay any tax. • In England if your home is rented out for less than 140 nights you will continue to pay just council tax. It you rent it out for more than 140 nights you will be liable for business rates.

In Wales you will liable for business rates if it is available for 140 days and let for more than 70 days.

There are other tax benefits available for owners of holiday let properties. A recent report from holiday home developers Spot Blue noted that furnished holiday lets in the UK are treated as businesses and attract capital allowances while most of the running costs are tax deductible. In recent years the growth of this sector has been nothing short of phenomenal. Here are some relevant statistics from a report published by ARLA (the Association of Residential Letting Agents) in partnership with research consultancy Capital Economics: • 16% of adults in the UK have let out all or part of their property at least once in the last two years. • 4.5 million properties, the equivalent of recommendations to limit the impact of 19% of the UK’s housing stock, have been short-terms lets, including measures to level used for short-term lets. the regulatory requirements and taxation • 16% of landlords offer only short-term lets and a further 7% offer short-term and long-term lets. 2.7% of landlords have switched from long-term tenancies to short-term lets equating to 46,000 for short-term and long-term lets; and also to consider introducing limits on short-term letting in areas where there is a demonstrable impact on the supply of property in the private rented sector on long-term lets. properties. I have had some personal experience of the • 38% of landlords cited the changes in tax relief and more burdensome regulations in the long-term letting market as the main reasons for switching. 27% said that they expected to achieve higher rents from short-term lets. problems that might arise from holiday lets. I own a flat in a house that has been converted to five flats near the city centre. One of the other flat owners decided to rent his flat out as a holiday let. The first problems to emerge were litter from takeaway meals and late- night noise. This led to a complaint from my The average annual tenants that I passed income from Airbnb varies substantially The rapid rise of holiday on the freeholder. She informed me that by location with the most popular lets has caused some a holiday let would directly contravene locations in London, local authorities to the terms of the lease Scotland, the South East and the South begin to develop a more and the insurance policy for the building. West. London has the highest potential regulated environment Fortunately the owner of the apartment monthly earnings at £3,000 followed by for the sector. reverted back to a conventional assured Edinburgh (£1,500), shorthold tenancy and Manchester (£1,500) we managed to avoid taking it court! and Bristol (£1,400). However it should be noted that the variations by location are driven by local factors such as very high rents in central London and the boost to Airbnb lettings from the Edinburgh festival. There is no doubt that short-term lets can produce higher incomes compared with assured shorthold tenancies. However before venturing into it BTL investors need to do their homework. The rapid rise of holiday lets has caused some local authorities to begin to develop • First up, find out if your lease, insurance a more regulated environment for the policy and mortgage company will permit sector. The Scottish government is planning it, and if a licensing scheme is being legislation to enable local authorities to introduced by the local authority. introduce a licensing scheme for short lets • Second, investigate the local market. Is it and to establish designated areas where a good location for holiday lets, how much planning permission will be required before local competition is there and what is the properties can be rented out. The scheme going rate per night? will also set safety requirements for shortterm lets and conditions for a licence may • Then do the maths, taking into account include dealing with litter and preventing how many days per year it is likely to overcrowding. be let. In my home city of Bristol the council is also • Finally don’t forget that the management moving in the direction of tighter regulation of a short-term let is much more and has endorsed a motion to regulate intensive that a conventional accommodation by owner occupiers. Cllr assured shorthold tenancy. Estella Tincknell commented that “Airbnb properties are not subject to planning, not registered as hotels, not inspected for safety and do not pay business rates or VAT.”