With a growing number of holidaymakers choosing to take self-caterings breaks in the UK, the holiday lets sector is an expanding business area.
Renting out a holiday home could be a nice little earner
Russell Lawson, from the Federation of Small Businesses Wales, looks at the key differences between a holiday let and standard rental property.
My partner and I have found what looks to be a good business proposition in mid-Wales - house, two outbuildings with planning permission for holiday lets plus a working goats' cheese business.
We have previous experience in letting, and in keeping goats and other animals so we're not totally inexperienced.
What pitfalls should we look out for, and are there organisations that can provide help and support to small rural ventures?
How long should we allow before we can assume an income from the business?
Russell Lawson, Federation of Small Businesses Wales
Holiday lets is a fascinating area. Self-catering is now the fastest-growing sector of the UK holiday market.
Today more than four million people a year rent cottages and holiday apartments, more than 220,000 people in Britain own a second home, and around half of UK rented holiday homes are let independently rather than through agents.
The main benefit when it comes to holiday homes, as oppose to renting out other types of property, is that if you let out a furnished holiday home in the UK, your rental income will be treated more advantageously for tax purposes than from other rental income.
However, your property must keep to some rules known as qualifying tests.
To make sure your property counts as a holiday letting, it must be:
In the UK
Available for holiday letting to the public for at least 140 days a year
Actually let as a holiday let for at least 70 days a year (and these must be commercial lets, not at cheap rates to friends and family)
In addition, the holiday lets must be both:
Short term lets of not more than 31 days
The only lets over a period of at least seven months
Also, you can't let the property as a holiday let to the same person for more than 31days in the year.
However, if you meet all the qualifying tests in a seven month period there are no restrictions on longer lets in the remaining five month period.
But these longer lets do not count as holiday lets.
Your profit on UK holiday lettings is worked out in the same way as for other rental income, except that you claim 'capital allowances' rather than the 'wear and tear' allowance.
Examples of expenses that qualify for capital allowances include the cost of furnishings and furniture, and equipment such as refrigerators and washing machines.
You can learn more about capital allowances and working out profits for UK holiday lettings in the land and property help notes of the Self Assessment tax return.
If your property does not qualify as a holiday let, you will be taxed as normal for rental income.
As for help and support with small rural ventures, the Department of Environment Food and Rural Affairs runs the Farm Business Advice Service.
This offers all farm businesses free advice, whether they are looking for ideas for additional income or simply need advice on how to take the business forward. Call 0845 600 9 006 between 8:30am and 5:30pm Monday to Friday.
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