Recent data obtained from a Freedom of Information (FOI) request to HMRC has shed light on the growing profitability of holiday lets over long-term buy-to-lets. For the first time since records began in 2011, the average income declared on a holiday let surpassed that of a long-term let during the 2020/21 tax year.
According to the FOI request, the average income declared to HMRC for a holiday let rose to £15,600 in 2020/21, marking a 15% increase from £13,600 in 2019/20. In contrast, the average income declared on a buy-to-let property fell slightly from £13,800 in 2019/20 to £13,400 in 2020/21. This resulted in holiday let income ending the tax year 14% higher than long-term let income for the first time since at least 2011.
Two main factors have contributed to this shift. Firstly, most holiday lets are used for both personal and commercial purposes. Over the past few years, owners have increased the proportion of time their properties are let out commercially, due to rising costs and the introduction of council tax premiums. Secondly, the staycation boom during the Covid-19 pandemic played a significant role in increasing occupancy rates and rent levels for holiday lets.
But it’s worth remembering that while holiday lets make more income, the running costs are considerably higher. Over the last 10 years, running costs ate up 43% of holiday let income, while the comparable figure for a buy-to-let came in at 31% (excluding the cost of any financing). This broadly means that at the end of the year, both sets of owners had a similar amount of cash in their pocket.
Although the rise in income from holiday lets is expected to slow or even fall back slightly as holiday makers returned overseas in 2022, it is likely to remain above pre-pandemic levels.
The FOI request also investigated whether long-term landlords have been transitioning to the short-let market for increased profits. While some have made the switch, the numbers remain relatively small.
Over the past decade, the number of individuals declaring income from holiday lets has risen from 46,000 to 63,000. Of those, 39% also received income from buy-to-let properties, with this figure experiencing a slight increase. However, only 1.5% of all landlords are also holiday let owners, up from around 1.3%. These figures do not indicate a mass exodus of landlords from the private rented sector into holiday lets.
