Renting out your holiday home can a be a great way to generate extra income. But there are some hidden costs that you’ll need to consider if you are aiming for big profits.
Here’s our top 10 tips for reducing your costs and boosting your income from renting out a holiday home.
1. The tax advantages of renting out a holiday home
Owning a holiday let means you could be eligible for several significant tax breaks, but a lot of owners don’t realise the full potential of this opportunity.
Furnished Holiday Let Tax
If you want to rent out your holiday home, then it'll need to qualify as a Furnished Holiday Let (FHL). Properties that are registered as Furnished Holiday Lets have special tax rules that work in your favour.
In order to qualify as a FHL, your property needs to comply with specific criteria, including things like being available at least 210 days per year and having bookings for more than 105 of those days.
If you do qualify as a Furnished Holiday Let, you may be able to claim Capital Gains Tax relief rather than being classed as an investment, the property qualifies as a business asset. You may also be entitled to capital allowances for things like furniture, fixtures and equipment.
Unlike with other residential property incomes, the profits made from a FHL count as earnings for pension contribution purposes.
What’s more, if the property is closed during part of the year because of a lack of custom, the whole year’s expenses, such as insurance and loan interest, can potentially be deducted, so long as you’re not living in the property.
Note: Renting out a holiday home in Wales might have different tax implications that renting out a holiday home in England. Make sure you do your research and consider the local council to which your property belongs.
2. Additional energy costs when renting out a holiday home
Setting up a holiday cottage will require you to provide as much gas and electricity to your customer as they desire. With the cost of energy set to rise significantly in the future, you need to make sure you are getting the best deal if you are renting out a holiday home. Your guests will be paying for comfort, and they will expect to be able to access heating and gas at their leisure.
Rising Energy Costs
A recent report from Places for People states that the average energy bill for a single household could rise by nearly £700 in 2022, due to the energy price cap being increased.
When it comes to energy tarriffs, most people start out on a fixed-rate deal, which will provide them with the cheapest and best option. But with more than 20 energy companies going out of business in recent months, you may find that you have automatically been switched to a new supplier.
If you are on a fixed tariff and and your supplier is still in business, then you will pay the same amount until the tariff ends. You will need to be aware of the date that your fixed tariff ends, because you will most likely pay much more from that date onwards.
If you are currently on a standard variable tariff, then your energy costs will increase because the price cap has risen.
If you are thinking of renting out a holiday home, then you need to do your research to make sure that you are getting the best possible deal. There are currently no exceptions for people who are renting out a holiday home as a registered business.
Try these tips for reducing your energy bill:
Don't assume dual fuel is always cheapest: It's worth comparing suppliers providing individual gas and electricity, as well as dual fuel packages, to see if there's a better deal to be had.
Opt in for an online tariff: Switching to an online tariff basically means you’ll have your bills emailed to you rather than posted, but doing so could save you up to 10% off.What’s more, you won’t be overwhelmed by a mountain of old bills, so it’s practical wins all round.
Pay via monthly direct debit: This assures companies you won’t default on what you owe them and they’ll be even happier to oblige, because they’ll be earning interest on any overpayments you make. Paying this fixed estimate each month means you could save anywhere up to 10% off, and overpayments will then be refunded at the year’s end.
3. Save money on your water bills for your holiday let
Although you’re not able to switch your water supplier, there are still lots of great ways to reduce how much your water holiday home uses in order to help bring down the cost of your bills.
Water-saving shower heads
If you have a power or mixer shower, water-efficient shower heads are an ideal method of saving water and energy alike. The flow of water they produce seems much higher than it actually is, so you conserve water without any perceptible difference whatsoever. Electric shower units can be damaged by water-efficient shower heads, though, so do be aware before you install one.
Water-saving toilets
Older UK toilet models that are still in use can guzzle a staggering 14 litres of water with every flush. Nowadays, newly installed toilets are not permitted to have a flush volume higher than 6 litres – however, this amount can be reduced still further in order to save you money.
A dual flush toilet offers two different volumes of flush: a low volume one for liquids and a full volume one for solids. These models make a noticeable affect on water conversion, using only around 2-4 litres per flush. In addition to this, they tend to have larger trapways, so they’re far less likely to get clogged.
If you’d rather not go so far as replacing your toilet, you can install a cistern displacement device, which many water companies provide free of charge. Having one fitted to your toilet could save you 1-3 litres of water for every flush.
Free water-saving devices
Water companies offer all kinds of free gadgets and devices to customers. Visit Save Water, Save Money to find out what free, water-saving gizmos are available in your local area.
You can also find lots of clever water-saving tech, including the gadgets mentioned above, at a saver-friendly price on Amazon.
Water butts
Does your holiday let have a garden? It’s time to ditch the hose in favour of a water butt. These uncomplicated contraptions collect and store rainwater straight from Mother Nature herself. Simply fill your watering can and sprinkle away, to watch your savings grow.
4. Rules and regulations for holiday lets
There are a multitude of different rules and regulations surrounding finance that you need to consider when renting out your holiday home, and some can cause unexpected costs. To avoid any pitfalls, here’s our advice on what to look out for:
Planning permission for renting out a holiday home
Even if you are not building anything new, you may still have to request and pay for a change of use permit to turn your home into a holiday let. Make sure you understand all of the rules regarding planning permission and holiday letting. The permit will come at a cost, but you’ll be saving yourself further hastle and money in the future by avoiding fines.
Mortgages for holiday lets
The rates for a mortgage for a holiday let property is generally much higher than that of a regular mortgage. Be prepared to pay the extra charge and remember to shop around.
Public liability, buildings and contents insurance for holiday lets
This is a often a standard requirement for holiday letting, and you’ll need to make sure you are fully covered. Don’t be tempted to cut back, you need to make sure you are fully covered for all eventualities incase the worse should happen.
Can I rent my house out as a holiday let?
Yes, you can rent out your home as a holiday let, but you may need to request a change of use permit from your local council, and you’ll also need to inform your mortgage provider of the changes. It’s best to seek advice from experts if you are thinking of renting our your house as a holiday let.
Can I stay in my own holiday let?
The answer is yes, you can. Remember that the more time you spend at your holiday home, the less revenue you will be making from paying guests. But it’s a great idea to stay in the property to get a feel for it, it will allow you to understand how your guests will feel and to
make amendments where necessary. You need to also remember that it will be required to be let out for a certain number of days per year, so keep this in mind when you are planning your visits.
With recent energy costs soaring, you could save on your energy costs by boosting your properties insulation, for example:
Roof insulation: On a detached house in England, Scotland and Wales, the Energy Saving Trust estimates that insulating your roof/loft typically costs around £395.
Cavity wall insulation: If your house dates from after 1920s, the likelihood is it’ll have cavity walls. Most homes from around the 1990s will have cavity wall insulation already, but if yours doesn’t, it’s a very sensible investment to make.
Solid wall insulation: If your house dates from before the 1920s, it will likely have solid exterior walls. Solid wall insulation tends to cost substantially more than cavity walls, but this ultimately means that the savings will be greater too.
Draught-proofing: Costing roughly £200 to have professionally done, draught-proofing windows and doors and shoring up cracks in skirting and flooring could save you £25 per year. Alternatively, a DIY solution could cost you even less – especially with low-price draught-exclusion materials.
6. Fire safety and holiday letting
You can save yourself from the extensive cost of fire damage by making sure that you have taken every measure possible to protect your home and your guests from any risk.
You need to ensure that you fully understand the need for fire safety measures in your holiday home. It’s your responsibility to ensure that the property meets all of the standard requirements for fire safety.
This can come at an additional cost, but you’ll be saving yourself from potential losses by making sure that you have done all you can to prevent the event of a fire.
To protect yourself and your property, it’s unequivocally necessary to be properly insured. This is where holiday home insurance comes in, which includes both buildings and contents cover.
Different insurers offer different holiday/second home policies, so it’s paramount that you double check the terms for each one very carefully, in case there are any exclusions, then compare with others on the market.
Think about choosing a higher excess, if you can, because you’ll normally end up receiving a lower premium. Finding the cheapest policy doesn’t necessarily guarantee you the best cover.
Remember to shop around for quotes. It’s possible that dedicated holiday home policies for buildings and contents from the same insurer could work out cheaper than getting individual policies from different ones.
Certain insurance permit you to conveniently pay your premium monthly in order to soften the blow of the cost. This, however, will normally end up being more expensive, so it’s better to try and and pay in one go.
Keep your holiday home well maintained and secure. Ensure it’s fully winter-proofed, and include security measures like alarms etc, as these things can affect your claim too. Check if each measure put in place alters your policy as well.
8. Renting out a fully furnished holiday home
This tip is about how to make sure you don’t lose money by making the style of your property too personal. To make sure you’re attracting the most guests and the most income, create an ambience everyone can enjoy.
Aim for a more neutral style and you can't go far wrong. Keep things simple, try to balance fresh and functional with a sense of simplistic elegance.
Save money by sourcing second hand furniture
Buying good furniture definitely doesn’t have to cost the earth. There are all sorts of brilliant places you can nab yourself some top-quality furnishings for next to nothing.
If the thought of bidding amid a crowd of eager money savers sounds a bit much, online auction sites like Ebay are the answer. Not only is bidding stress-free – you can also tailor your searches to what you’re looking for, so you’re sure to find exactly what you’re after, for an extraordinarily cheap price. Gumtree’s online classified ads are wonderful too, since they’re great for focusing on what’s available in your local area.
Those that love finding something for nothing will love Freecyle and Freegle. They allow people to list all sorts of things they no longer want, which they’re giving away for free, usually just in exchange for you being able to collect items in person.
Quality pays off
The quality of each piece of furniture in your holiday let is hugely important. At all times, balance frugality with quality and you’ll be sure to save money whilst also inviting long-term income.
Where to find the best furniture deals
Buying good furniture definitely doesn’t have to cost the earth. There are all sorts of brilliant places you can nab yourself some top-quality furnishings for next to nothing.
For something a little different, why not track down the nearest furniture auction or find out when the next local police auction takes place? All sorts of incredible furniture, including beautiful antiques, passes through these events each day and you never know what gems you’ll find for a fraction of the usual price.
Think practical
Consider how many people your property accommodates and make sure there’s enough seating space for each person.
Bear in mind who’ll be staying with you too. Family- and dog-friendly properties may mean there’ll likely be a little mess, so washable and/or easy-clean covers for sofas and armchairs are a sensible choice. In fact, washable paints for walls and solid floors are a good plan too. It all saves you time, stress, and money in the long run.
For bedrooms, zip and link beds are hugely helpful, as you can change the configuration of a room in moments by transforming a double into a twin, allowing you to cater to more guest needs and widening your appeal. King size beds are often much sought-after by guests too and make a great selling point, so investing in these may be a wise option, if your budget allows.
9. Energy-saving appliances
The old adage “buy cheap, buy twice” couldn’t be truer, when purchasing holiday let appliances. Flimsy, unreliable products will repeatedly cost you time and money to deal with. Making sure you buy high-quality appliances for your holiday home means they’ll last longer, work well, and keep both your wallet and your guests happy.
Buying new is recommended, since you will likely receive a warranty in case anything should break. It may even be worth considering purchasing an extended warranty. If an appliance does break, it’s usually easier and more cost-effective to have it replaced rather than paying for repairs. This saves you paying for call-out and repair costs, and also prevents you from disrupting your guests or affecting your occupancy.
Energy-efficient washer and dryer
A washer and dryer is a very sought-after features in holiday properties. Guests often like to pack lightly – not to mention explore the great outdoors in all its mucky glory – so chances are they’ll want to clean their clothes at some point, if they’re staying for more than a couple of days.
However, according to Uswitch, a standard washing machine can account for roughly 7% of your energy bill, which is why it makes sense invest in an energy-efficient model. Although they’re more expensive, they use less than half the water, energy and even detergent that typical washer dryers do, so the overall investment balances out much quicker than you’d think.
Eco-kettle savings
The kettle is probably one on of the most used appliances in any household – even more so in a busy holiday let. To stop your energy bills rising with floating away amongst the steam, why not switch your current model with an eco-kettle? They use 20% less energy than conventional kettles, and only boil the amount of water that’s actually needed.
Remote appliance control
If you live on-site or near to your holiday let, there are lots of clever tech touches available that will help you save money and time during guest changeovers. All sorts of remote control devices exist that allow you to turn every appliance in your holiday home on or off simultaneously. You’ll save time when arriving and you’ll have the added peace of mind that nothing’s left on standby once you’ve left.
A lot of remote devices also allow you to put certain appliances on a timer. Are your guests arriving after dark on an autumn evening or winter afternoon? You can make sure everywhere that’s necessary is lit up and ready for their arrival time without worrying about soaring electricity bills. Great service and great savings – everyone’s happy!
10. Build a reputation through guest reviews
Dealing effectively with guest complaints and giving them a memorable stay is one of the best ways for you to generate more income and minimalise the cost of settling disputes.
Reputations take time to build. If you are consistent with your approach to the smaller touches, then word will get around about your property. You need to really try and make your guests feel welcome at your property.
A little bit of give and take
A little goes a long way. Providing small things such as welcome baskets can put you in a good position to ask the guests to leave a review.
You need to try and give your guests a reason to shout about you, and if they’ve truly enjoyed themselves at your property then they will be happy to share their comments. So don’t be shy, ask your guests to leave reviews and reply to them where ever you can.
Dealing with complaints
Unfortunately things can go wrong when renting out a holiday home, and the way in which you deal with those complaints could have a big impact on your purse.
Settling disputes amicably will not only significantly reduce the chance of litigation, which could be very costly, but it will also prevent negative reviews being published.
Here are a few tips to help you keep your guests happy:
Two pillows per person and a blanket or throw on each bed for when it gets chilly.
All the basic utensils guests on their holiday might need: saucepans, frying pans, chopping knives, tin opener, cheese grater, spatula, stirring spoon, bottle opener, measuring jug, scissors, etc.
At least enough knives, forks, spoons, glasses (including champagne flutes for people wanting to celebrate), and crockery for each person, plus a few more as all important spares.
Think about stocking coffee, teabags, salt and pepper, olive oil, and vinegar in the kitchen cupboard.
A small bundle of cleaning items is also useful and will help guests help you keep things clean and tidy too. Washing-up liquid, surface cleaner, a J-cloth, some dishwasher tablets, and some washing machine powder are a few good examples of things to include.
Bathroom essentials: minimum of three toilet rolls per bathroom, good quality towels, at least one bath sheet and hand towel per person, a small, bag-lined waste bin, toilet brush in hygienic condition, some bleach.
In rural areas, a few pairs of spare wellies are a lifesaver for guests. A large doormat for changing into them will prevent muddy footprints being left about the house.
Everything from traditional board games, puzzles, and a shelf of books for rainy days to garden games like croquet or swing ball for sunny ones are fun, that'll help you get a great review.
If you accept dogs, provide a water bowl and some clean, old towels.
Need help with the next steps of your holiday letting journey?
If you're thinking of buying a holiday let or just need some advice, our property experts can help answer any queries you may have.
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Owen, Holiday Let Content Writer
