Holiday Homes are wonderful things.
Have you ever given thought to packing up the car and escaping for the weekend to a holiday home?
It’s an enticing prospect.
A few weeks well-earned rest and relaxation in your quaint holiday cottage or spacious apartment looking over the water – what’s not to like.
But there are a few precautions and considerations you should consider before buying a second home as a holiday home in England and Wales.
Here are a few pointers for you to help you decide.
Welcome to Chapter 26 of our Series, your Conveyancing Questions Answered All in One Place: Holiday Homes.
Location, location, location
The big question when you consider buying a Holiday Home. We think you need to answer these questions for yourself.
Accessibility – for example, some areas of Cornwall are quite remote. Do you want your house to be easily accessible and with local amenities or are you looking for remoteness?
Travel time – do you want a location that is within a reasonable distance but far away enough to make it worthwhile? A location that is 4 or 5 hours away means a lot of time driving and not relaxing!
Parking – Some beautiful coastal towns don’t have much parking and it can come at a price.
Renting – if you decide to rent out your holiday home you want it in an area that will attract tourists but not somewhere that is saturated in holiday homes.
Things to do – do you want a location in a small town, where you can walk to the beach, the shops, restaurants, or are you looking for a house in a village where you have to drive everywhere?
Visit the area – spend some time in the area, research local amenities and activities, always visit the property before buying.
Renting out your holiday home
If you decide to rent out your holiday home when you aren’t using it to make some money and counter balance the outgoings you will need to consider:
When should I rent it out? – Whenever you want and aren’t using it yourself. Check that the local area doesn’t have any specific restrictions on the time that holiday homes are allowed to be occupied.
How much should I rent it for? – This depends on the size and location of your property and the time of year. Take a look at similar properties in the surrounding area for a guide.
Changeovers – what if you live miles away, how do you manage changeovers for incoming guests? – Look at local cleaning firms. If it’s a popular tourist area there should be some professional companies locally.
What about my personal items? – anything you keep at your holiday home that you don’t want strangers touching should be put away either in a safe or a lockable cupboard.
Leave a welcome hamper – bread, pastries, jam, tea etc for breakfast. This makes the arrival more personal. It will also help the tenant see that it’s someone’s home and take more care!
You will have to decide on taking damage deposits. Cumbersome maybe, but saves trying to reclaim your costs for remedying any damage.
How will you publicise your holiday home for rent? You could build your own website perhaps or use one of the many Holiday Letting Agents either locally or nationally
Buying a Holiday Home Off Plan
This is not an unusual occurrence when you want to buy a brand new holiday home.
You will invariably pay a premium over any second-hand value just as with a home for your primary residence.
Inflation normally takes care of this over time but expect to wait longer for holiday home ( especially those with residence restrictions) values to catch up.
Developers as with any off plan developments can change their minds over the future development of the Estate. The plan of the Estate when you signed up may look different to the Estate when it is completed.
Ground Rents and Service Charges should be looked at carefully. If there is an escalating Ground Rent work out what the rent will be in 10, 15 or 20 years time.
A worrying trend is for Developers to sell the freehold to the Estates to institutional Buyers such as pension funds.
Ground Rents are vulnerable to reinterpretation and not in the favour of the Holiday Home owners. That is, they can increase!
What tax will I pay on my holiday home?
You will have to pay tax, in a number of forms on your holiday home;
By far the biggest burden is Stamp Duty Land Tax. This was revised so you pay a larger percentage for a second home than previously.
The Stamp Duty will be 3% on top of the normal SDLT rates. You can use the Government’s helpful calculator here to work out how much tax you’ll pay.
Council tax – usually the full amount. But consult the local authority for more information.
Income tax – if you’ve decided to rent out your property you will need to declare this to HMRC and pay income tax.
Capital Gains Tax – when you come to sell the property you may need to pay tax on profits you make over an above your yearly allowance
There is come good news though.
Income tax is only calculated on the income after allowable expenses (council tax, maintenance, buildings & contents insurance) have been deducted.
But, be aware that you must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year.
The holiday home must also be available for letting as furnished holiday accommodation letting for at least 210 days in the year
Can You Live In a Holiday Home All Year Round?
Yes and No, and it depends
If you buy what is for you a second or holiday home then you may choose if you so wish to live there all year round.
However, some purpose built holiday homes do come with certain residency restrictions.
The most common restriction limits occupation to only 11 months of the year.
A Local Council can grant Planning Permission for holiday homes even where sites are outside of any recognised settlements and in areas where unrestricted residential accommodation would not be appropriate.
The Council insists properties on such developments are for “recreational” use only, and must not be a primary home.
The Council considers of paramount importance that holiday home owners must not enrol children in local schools or register with a GP as this would put an extra strain on Council’s resources and budgets
How Does It Work?
Cotswold District Council, as an example, has granted such planning permission for a significant number of new holiday homes over the last 15 years or so.
The Council to ensure compliance with its holiday home policy insists on two important conditions:
1. The holiday home must not be used as a primary residence (the owner must already have a property used for that purpose) and
2. The holiday homes must only be habitable 11 months of the year: no occupation is allowed between 5th January and 5th February.
Compliance with planning permissions is by way of what is known as an Enforcement Notice.
An Enforcement Notice
Enforcement Notices are legal notices used to secure the discontinuance of an unauthorised development or to secure compliance with the terms of a planning permission.
Failure to comply with an Enforcement Notice is an offence and may be subject to a fine.
What type of insurance will I need for my holiday home?
You will need various types of insurance on your holiday home. It is advisable not to use regular home insurance or amend your existing policy.
Buildings insurance to cover the structure, and permanent fixtures & fittings.
Contents insurance and/or personal possessions insurance to protect your belonging when the property is empty or rented out.
You may need separate insurance to cover items in the garden. Sheds, lawnmowers, table & chairs, BBQ etc
Holiday home insurance covers the property when empty or if rented to friends, family or strangers.
Accidental damage cover should be included for when the house is rented out.
Loss of income cover in case the property is damaged and you can’t rent it out.
Alternative accommodation cover if there is a structural issue or damage that means you can't stay at the property.
To cover your belongings when renting the property out.
You will need public liability insurance if you are renting the house out.
Some of these are only applicable if you are renting out the property.
What about Security of Your Holiday Home?
Some insurance policies require that you have specific security measures on your house to make sure you are covered when the property is empty. Here are some things to consider:
- Crime levels – research the local crime levels. This may have an impact on your insurance premiums.
- Change the locks – you don’t want strangers with a set of keys wandering in.
- Install a key safe – these are fantastic if you rent out the property. A secure way of storing the key for when the tenants arrive or leave. No leaving the keys under a flower pot!
- Security grilles at the windows – to prevent break-ins through the windows.
- Ask a neighbour to check on the property – they can report any issues back to you and open/close the curtains
- Security lights – allows the neighbours to see any unexpected movement.
- Install a safe – to store your or tenants valuables.
- Ask your family, friends or tenants to respect your security measures.
Holiday Homes are great dreams to have just be careful you do not let your heart rule your head when making the move.