How much does it cost to buy a holiday let in Cornwall?
Costs are an important consideration in any home purchase and buying a holiday let is no exception. From doing your sums to see if you can afford the initial outlay, to calculating the cost of annual maintenance requires careful thought and time. In this article, we take a look at all the costs of a holiday let in Cornwall, some unexpectedly high and others surprisingly low.
What it costs to buy holiday let in Cornwall
When budgeting for the largest cost of all, you need to bear in mind the following:
While deposits for a primary residence typically range from 5-20%, those for second homes tend to be higher. Expect to have to put down 25% deposit when buying a holiday let in Cornwall.
The stinger for second home buyers, stamp duty adds a sizeable chunk to your purchase costs. Applied on a sliding scale and based on the purchase price, stamp duty starts at 3% on the first £125,000 and rises to 13% on properties priced over £925,000.
If you’re using a mortgage to buy your holiday let, don’t forget to factor in the costs. These may include a valuation on the property for mortgage purposes. Expect to pay from £150 for a valuation depending on the complexity of the report and property value.
For peace of mind, it’s best to have your holiday home surveyed. Depending on its age and state, you may go for a straightforward homebuyer’s report (typically from £250) or a full-blown structural survey (from £600).
House buying fees
You’ll also need to budget for solicitor fees and land registry fees.
Holiday home set-up costs
Now you’re the proud owner of your holiday let you need to go about creating the perfect place to stay in Cornwall.
Unless you’ve bought a property in tiptop condition or one that meets holiday guest requirements to a tee, you’ll be thinking about doing the property up. This might range from just giving the whole place a new coat of paint and general smarten-up, to extensions or major upgrades.
Before taking on the cost of a refurb (and the stress!), consider how it will benefit the property. Look at its cost and see if you’ll get this back in higher holiday let income. For example, adding another bedroom to the property allows you to let to bigger groups and therefore charge more. Adding a conservatory, on the other hand, may add appeal but not necessarily income.
Fittings and furnishings
In the competitive world of Cornish holiday lets, only the best will do. This means you’ll need to spend a considerable amount on furnishing and fitting the property. Think also about wear and tear – cheaper furniture may cost you less in the first instance, but if it doesn’t last, this could be a false economy.
Taxes on holiday lets
Tax obligations are part and parcel of any business, including holiday lets. For tax purposes, holiday homes are referred to as Furnished Holiday Lets (FHL). Taxation matters are rarely simple so it’s best to take professional advice on this aspect of your holiday let business. You will be liable for the following:
Holiday homes are classed as businesses for council tax purposes. This means you pay business rates rather than council tax. Business tax is calculated based on the rateable value of your property. If your property’s rateable value is less than £12,000, you’re exempt from business tax. If it’s worth more, you qualify for Small Business Rate Relief, up to 100% for properties with rateable values below £15,000.
You will pay tax on your holiday let income as part of your income tax. Depending on your earnings, your holiday let income should attract the same tax band as your regular income. When calculating your tax liability, don’t forget to apply all the available deductions (see Allowances below).
Capital gains tax
Holiday let owners enjoy significant capital gains tax (CGT) advantages when they sell their property. Because a holiday let is a business, you qualify for Entrepreneurs’ Relief on CGT. The first £11,100 profit is therefore exempt from any tax and the remainder is taxed at a flat rate of 10%.
There’s also the possibility of using all profit from the sale to buy another holiday let, a tactic known as Business Asset Rollover Relief. Depending on the amount of profit, this may or may not benefit you – take expert advice on which option suits your tax circumstances best.
Holiday home running costs
Your time – even if it’s your own, time always costs money. If you’re running the holiday let, bear in mind the time you spend managing the holiday let and put a price on it.
Property management – if you’ve chosen to use a management company to look after your holiday let in Cornwall, factor in an annual cost for this.
Cleaning and maintenance – budget for cleaning costs between lets and regular spring cleans. Bear in mind maintenance costs too, from an annual gutter clean to weekly gardening.
Utility costs – these include water, gas, electricity, internet and possibly telephone charges. As well as standard monthly charges, you’ll also be paying for consumption. Be prepared for bills to fluctuate depending on the season and how energy conscious your guests are (or aren’t!).
Insurance – you’ll need an annual policy to cover building and content insurance. Public liability insurance is also required to cover guest accidents in the property. You also might want to include damage (accidental and malicious) by guests. For a premium, some policies include cover for loss of income if the property can’t be used because of an accident (e.g. gas leak) or natural disaster (for example, flooding). There are holiday home insurance specialists.
Marketing costs – these can be as high or as low as you set them, depending on how you market your property. Talk to us about the options available. If you’re doing the marketing yourself, factor in website costs (annual domain and hosting costs, webmaster fees, etc), advertising expenditure, and of course, your time spent on marketing your property.
Breakages and wear and tear – things break or get broken in any home. Breakages are even more common in a holiday let with more people transitting and guests who don’t look after your stuff as they would their own. Factor in an amount every year for replacing broken or tired fittings and furnishings, from big-ticket items such as appliances to small, low-cost objects such as mugs.
Top tip – budget 1% of the purchase price for annual running costs. So, for example, if your holiday let in Cornwall cost £350,000, allow £3,500 a year for maintenance costs.
Tax allowances on holiday lets
The good news about holiday lets is that it’s not all about spending; generous allowances are also available. HMRC classifies holiday lets as trade rather than investment, a category that opens the doors to tax deductions and other benefits.
The following are deductible from your annual tax bill.
Mortgage interest payments – you can deduct from your rental income tax bill all interest paid on your holiday let mortgage during the financial year.
Plant and Machinery Allowance – this rather industrial name is actually another way of describing fixtures, fittings and furniture. Expenditure on these items – for example, carpets, kitchen appliances, a security system and sofas – can be used as an allowance towards your final tax bill. To qualify, the asset must be used in the holiday let and owned by you.
Pension contributions – profit from holiday letting may be used towards your pension contributions.
Qualifying for these allowances
Only holiday lets known as Furnished Holiday Lets (FHL) qualify for mortgage interest deductions and the plant and machinery allowance. A FHL in Cornwall must meet the following conditions:
- Be available for holiday rental for a minimum of 210 days a year.
- Be let for a minimum of 105 days a year.
- Be let long-term (31 days at a time) for no more than 155 days a year.
At Cornish Traditional Cottages, we know just what it costs to own and run a holiday let in Cornwall. Why not get in touch and make the most of our expert knowledge?