I have just purchased a beautiful seaside second home in Bournemouth and am interested in renting it out to guests while I am away. I have a few friends who have been doing this for years and it seems like a great way to get the most out of the property. I do not know where to start. Are there any legalities or rules I need to know if I decide to rent out my second home? Are there tax advantages?
Charles Miéville, senior counsel in the residential real estate team of the law firm Pemberton Greenish, says it’s important to distinguish between a furnished vacation rental and an Airbnb-style arrangement. The other key difference is whether a property is freehold or leasehold. Although possibly subject to license agreements from councils, owners of freehold and unmortgaged buildings can manage their properties as they see fit.
Treating a property as a furnished vacation rental may still qualify you for income tax relief, as you can deduct mortgage interest from earned income, which is becoming increasingly difficult for traditional properties. to buy to rent.
Airbnb may allow you to earn income in a less formal way, subject to tax and any deductible expenses.
In addition, there may be a reduction in housing tax for a furnished seasonal rental. If you plan to rent only when you are away, you may not be able to claim it – the property must be available for at least 210 days per year and must be rented for 105 days.
If a property is rented or mortgaged, expect more obstacles. Lender consent is most likely required and may not be given if your mortgage is not a buy-to-let mortgage. Any mortgage would probably prohibit Airbnb-style arrangements.
With respect to leasehold properties, subletting usually also requires consent. This is likely to be held back against Airbnb in most leases.
Leases often include a provision requiring use as a single-occupancy private residence, and case law suggests that Airbnb would violate this rule; a lease may also prohibit either parting with possession or a sublease that is not a standard “secured short-term tenancy”.
Given the problems subletting can cause for neighbours, this is a live issue, with landlords also citing a violation of ‘quiet enjoyment’ provisions when subletting complaints arise.
Hema Anand, Real Estate Partner at Bircham Dyson Bell, indicates that several issues should be considered if you decide to rent. You don’t say if it’s an apartment or a house: if it’s an apartment, you have to consider the terms of your lease and whether you’re allowed to rent the property from the way you suggest. For example, you may require landlord consent or the lease may prohibit this type of rental.
Temporary occupancy is considered carrying on a business, which is generally prohibited by most leases. If there is a mortgage, you need to consider whether you need your lender’s consent or you risk not meeting the terms of your loan. Also, consider whether such occupancy will invalidate any building insurance.
With regard to the housing tax, the municipalities may, at their discretion, grant furnished second homes or holiday homes a reduction of up to 50%. In your situation, however, Bournemouth does not grant council tax exemptions or reductions. Alternatively, if the rental qualifies as a business, council tax is not payable and you may qualify for small business rate relief.
There may be tax benefits for dwellings qualifying as furnished vacation rentals. For example, the “equipment” of the property may qualify for capital cost allowances. Capital gains tax relief may be available when selling the property.
From an urban planning point of view, the situation with regard to short-term seasonal rentals and planning law is complex. Case law has established that permission will be required in the event of a “significant change in use” of vacation rentals and it will be a matter of fact and degree in each case. Much will depend on the characteristics of the use as holiday accommodation, for example whether the property will be occupied by people living in families or by people who are not family groups.
In London, the government introduced an exception in 2015 that allows short-term rentals without planning permission as long as the cumulative number of nights does not exceed 90 per year and the landlord pays council tax. There is no such exception for areas outside of London. I recommend you speak to Bournemouth Council to discuss the proposals in more detail.
The reviews in this column are intended for general informational purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect results arising from reliance on the answers, including any losses, and exclude all liability to the fullest extent.
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