Demand for Short Terms Lets at a Record High
The widespread influence of short-term letting platforms such as Airbnb have made the landlord experience more accessible than ever. Those that are fortunate enough to own a property within a desirable location are able to capitalise on this demand, allowing tenants to make use of their home, or simply rent a room for a short period of time. And with the number of holiday makes looking to keep their vacation plans within the UK, not only have the amount of property owners choosing to let out their home surged, but so too has the cost tenants must bear.
Whilst short terms lets are often commonly associated with vacations, and tenancies that expire after a week or two, they can last up to six months. Naturally, this is demands a far greater commitment from the property owner, potentially plunging them into the role of the landlord prematurely.
Short Term Let Prices Soar
Of course, when the potential gains are realised for opportunistic short term let landlords, it’s clear to see the widespread appeal in doing so. Despite Airbnb becoming a household name, arguably being synonymous with short term lets, during sporting events, festivals and events that generate enough fanfare property owners new to letting out their home have been known to consult letting agencies that specialise in offering short term rental opportunities during such events. Over the course of the 2018 Wimbledon tournament, such a letting agency called “Tennis London” was serving up three bedroom houses close to the grounds for over £5,000 a week. The specialist agency also saw demand for larger properties with five bedroom homes being available for roughly £7,500 each week, with the homes closer to the courts being known to be let out for up to £15,000 a week.
The surge in both supply and demand for short term rental opportunities is undeniable, with a study conducted in 2017 revealing that the amount of listings being offered on Airbnb had increased by over 50% from the year before. With The Guardian reporting that the amount of listings being featured on the popular short term letting site surging from 76,000 in 2016 to over 225,000 in 2019, the short term letting trend only looks to be on the rise.
More recently consumer advice group “Which?” found that in the last year alone the rental charges for short term rental opportunities across ten of the U’s most popular destinations have skyrocketed by as much as 140%. In the wake of the nation emerging from over a year of heavy lockdown restrictions and the surge in popularity of the “staycation”, many short term rentals have upper their charges in anticipation. Seeing the most dramatic increase are lets available in Brighton seeing a 140% increase on the same period last year, whilst Eastbourne, St Ives and Llandudno see rental prices increases of 70%, 47% and 40% respectively. Whilst the average increase seen across the nation is 35%, this seems to have done little to deter domestic holiday makers, with one lettings platform reporting that February 2021 saw a 160% increase in bookings than any other period in the preceding year.
With the average rental yield of the UK’s major rental hotspots being a fraction of this increase, the gains that can be realised through letting out your home for short period become clear, giving full time landlord and those that are simply looking to rent a room a significant financial incentive to do so.
Will You Have to Pay Tax on Your Rental Income?
It is essential for landlords that rent out their property on a short term basis to understand their tax exposure. Whilst I could be easily dismissed as something to earn a little extra on the side, or perhaps because the occupants will not consider your home their main residence, or stay for an extended period of time; lending itself to not considering your tax liability on this additional rental income. For some that are perhaps testing the waters of renting out their home for a short period, or to capitalise on a surge of fans or tourists if the property is let out for less than 140 nights each year, the standard rate of council tax must be paid. However, if the property is let out for more than this 140 day threshold, the owner will then be required to pay business rates. The specific amount that this rate will demand will be informed by the location and size of the property, alongside its capacity. Further to this if the amount of rental income gained reach year before expenses are deducted is £1,000 or below, the owners of the property will not be required to inform HMRC about the income, nor will this amount be subject to any tax.
If the owner of the property is looking to rent out their primary residence, they may be applicable for the government rent a room relief initiative. The rent a room scheme allows property owner that choose to let out their home for short periods to enjoy a tax relief threshold of £7,500 of rental income each year. Whilst those that earn under this amount will not need to take any additional steps after enrolment, landlords that bring in more than this limit will be required to complete a self-assessment tax return. Providing that the property in question is fully furnished and a room is let out, or the act of letting is to fulfil a business means like a bed and breakfast, property owners should have no trouble in applying for the rent a room scheme. However, if the accommodation being let is not considered to be part of the property owner’s home, is used for commercial means, to operate a business, is not furnished, or is only let whilst the owners main residence is abroad, the rent a room scheme cannot be applied and the normal £1,000 tax relief threshold will stand.
With this being said, it is important for property owners to note that if they are successful in their application for the rent a room scheme then they will prevented from simultaneously claiming the £1,000 tax relief for letting out their property for less than 140 days annually. Additionally, if the rental income generated by the property is shared between multiple owners, the threshold before their rental income will be taxed under the rent a room scheme will be drastically reduced to only £3,750 as oppose to £7,500.
The Benefits of a Short Term Rental
It is safe to say that the overwhelming majority of landlords would take measures to minimise their exposure to the impact of problem tenants. Whilst some landlords may be lucky enough to never have to encounter such an issue, others can be left devastated by complete neglect of a rental property at the hands of a tenant, or more commonly excessive levels of rent arrears. Of course, an opportunity to avoid moths spent navigating the lengthy eviction process and potential bailiff enforcement is nothing to be dismissed. Not only that but with many tenant campaign groups gaining significant traction in their calls for an end to the landlord favoured, section 21 notices, more commonly referred to as the “no fault” eviction, some predict an increasing amount of landlords will turn to offering short term renal opportunities over the coming years. Additionally, whilst it is common practice for the landlord to request a tenancy deposit be paid by the occupants, this will do little to address any significant damage found in the property.
Further to this many landlords that choose to exclusively offer short term tenancies hail the routes ease as they largely avoid the more tedious aspects of long term tenancies. They are not obligated to offer each new tenancy an energy performance certificate, alongside gas and electrical safety reports. Whilst landlords that offer these reduced tenancy periods are unable to take a tenancy deposit from their tenants, this means they do not need to enter any taken amounts into an approved deposit protection scheme and largely avoid one of the most common causes of landlord tenant disputes.
Whilst depending on the location of the property, demand for renting opportunities could be seasonal, but if the rooms are consistently filled the potential earnings of a short term let could far exceed that of the traditional long term tenancy. Due to the nature of the short term let, the landlord is also able to reclaim possession of the property far more easier and regularly than otherwise, empowering them to use the property as they wish, letting as often as is convenient whilst being able to sell the property without having to wait for a fixed period to draw to a close, or try and offer a tenant in situ opportunity to anther landlord, bringing g with it its own headaches of transferring tenancy deposits and informing the tenants.
Disadvantages of Short Term Rentals
Whilst we are certain that most will be aware of the importance of a properties location, this mantra can be said to be of far greater significance when regarding a short term rental. Of course, the demand for short term lets is proven and it can be profitable to let out your home for shorter periods, but that’s not to say this success doesn’t come at a cost. Whilst the flexibility that comes with a reduced tenancy does allow landlords to largely bypass the widespread fears of encountering a problem tenant, the owner of the property will have to market the opportunity far more consistently than those that offer longer residencies. With this urgency to occupy the property comes increased agency fees, associated marketing costs and as any repairs or cleaning duties will be attended to between most short stays, the landlords can expect far higher maintenance costs for the property.
The nature of a short term rental opportunity also leaves the landlord increasingly subject in an inconsistent income to say the least. It goes without saying that if the property is vacant no rent is being paid, leaving some landlords to hail the financial security that can be found with long term rental opportunities.
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February 12, 2021
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