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The rate at which holiday let companies are being set up has more than doubled over the pandemic, as second-home owners look to offset their costs amid a booming UK staycation market.
In the first six months of 2021, 1,401 holiday let companies were incorporated, up 83 per cent from the same period in 2020 and 119 per cent on 2019 — easily outpacing the growth in buy-to-let company set-ups, which were up 61 per cent on 2019 levels.
The figures, produced by estate agent Hamptons International using Companies House data, show a steady rise in the number of holiday let companies from around 2014, with a much faster pace of growth in the past two years.
Aneisha Beveridge, research director at Hamptons International, said restrictions on overseas travel had boosted the UK second-home market, particularly for those with increased levels of disposable income.
“A lot of people who fall into this category are the lucky few who haven’t had their income affected by the last year. They’ve racked up some savings and they’ve decided that putting it in property is a fairly safe bet. If you can also generate an income that covers the mortgage, that’s a win-win.”
Beveridge said 93 per cent of those incorporating for holiday lets owned only one mortgaged property, which pointed to the use of company vehicles by individuals rather than large corporations holding multiple holiday homes. She cautioned that a quirk of the data meant it did not include the numbers of homes bought for cash and held within a company. However she added these were likely to be a minority of purchases in view of the soaring prices for UK holiday homes.
Those buying a second home and renting it out are under no general obligation to set up a company. Holiday lets can be purchased and run by buyers as individuals, companies, trusts or partnerships. But there are tax reasons why a person may own through a company.
Those buying in their own name will pay tax on the profits at up to 45 per cent, depending on their income tax bracket (income tax rates differ for those living in Scotland). A company, however, currently pays tax on profits at 19 per cent. Robert Pullen, partner at tax adviser Blick Rothenberg, said: “Lots of people will buy a holiday cottage through a company so they pay corporation tax on the profit, though by no means everyone does it that way.”
However, for all types of owner, there are separate advantages if a property qualifies formally as a “furnished holiday letting”, such as relief on capital gains tax and capital allowances on purchases of furniture and fittings. Rules governing which properties qualify as an FHL include a minimum of 210 days in the tax year when the property is made available to let.
Chris Sykes, mortgage consultant at broker Private Finance, said residential mortgages held the appeal of lower fixed rates of interest between 1 and 2 per cent, compared with 3 to 4 per cent for a business home loan.
Sykes said that as well as new buyers of second homes seeking mortgages with the intention of letting, he had also seen a rise in the number of buy-to-let landlords switching to holiday let mortgages in order to move from long tenant leases to the more lucrative short-term staycation market.
“I’ve heard from landlords who have changed some of their properties from buy-to-let to holiday let properties and have been booked up within two days of releasing them for about two or three months. There’s a great opportunity in it but I don’t know how long it will last. Will we see the same thing next year and the year after?”
Beveridge said there was as yet no sign of a drop-off in interest in the second-home market, with the numbers of potential buyers contacting Hamptons with a view to buying one staying “resilient” over the past two months, even as the stamp duty holiday in England and Northern Ireland began a staged withdrawal on June 30.
In the longer term, the picture is less clear. “You’d expect that growth to slow in a year or two as global travel opens up,” she said.
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