The simple answer is yes, you can absolutely use your vacation rental investment for yourself, your friends and family, while taking into account certain limits set by the HMRC and the requirements of your lender.
The advantages of staying in your vacation rental
Besides giving you the perfect retirement, being in the property yourself can help improve your business.
The Cumberland guest Jamie Cowan owns seven vacation chalets in Dumfries & Galloway and have all stayed there with his family over the years. In doing so, he says he is able to find faults and correct them, thus improving the experience of future visitors.
Along with spotting flaws, personal experience of using the property can bring to your attention those finishing touches that lower your reviews from four to five stars – you might find the property to be a bit chilly in the winter and adding extra blanket for the beds would help make your guests more comfortable.
Getting to know the area and all it has to offer will also help you better market your property – producing restaurant or activity guides to enhance visitors’ stays, or really add heart and authenticity to your property descriptions on the booking sites.
Some vacation rental owners also find it helpful to stay in their properties while they catch up on maintenance or decorating work – perhaps in preparation for the upcoming peak vacation season.
What are the limits ?
With all of this in mind, there are certain limits to personal use that you should be aware of. Vacation rental mortgages require your property to be a “furnished vacation rental,” according to HMRC.
Properties that qualify as “Furnished Vacation Rental” (FHL) may benefit from tax benefits, in addition to other rentals of residential and commercial properties. If you wish to benefit from these advantages, your vacation rental must meet several conditions.
HMRC states that your property must be available for rent as furnished vacation accommodation for at least 210 days per year. The days you spend in the property do not count as available.
You must rent the property commercially as furnished vacation accommodation to the public for at least 105 days per year. During these 105 days, you are not allowed to count the days that you rent the property to friends or relatives, either for free or at a reduced rate, as it does not count as a commercial rental and does not count as a commercial rental. will therefore not satisfy. the terms of HMRC.
If you wish to use the property as a second home for long periods of time throughout the year, limitations also apply here. If the total of all rentals that exceed 31 continuous days exceeds 155 days during the year, your property would not meet the HMRC requirements for an FHL.
This list covers the main points you should be aware of when considering the personal use of your vacation rental investment. But this is not an exhaustive list of all the qualifying criteria for an FHL – government website provides a detailed set of guidelines.
Also, be aware that there has been recent information in the news that HMRC is considering tightening up the rules to mean vacation owners will have to prove that they have made a realistic effort to rent out properties. While this is intended to target second home owners who falsely register as vacation rentals, it will still have implications for actual vacation rental owners, in terms of good quality record keeping to prove their efforts. to rent their properties.
See the links at the end of the article for more information.
Requirements for your vacation rental mortgage
David Wallace, Home Loan Specialist at The Cumberland, explains how personal use of a vacation rental fits into your mortgage application:
“We lend on properties as a vacation rental investment. Part of our affordability assessment is to receive a revenue projection from a vacation rental agent, which is based on the property available for rental year-round, and with a high occupancy rate during periods of time. peak months (or by looking at historical income for properties that are already active vacation rentals).
“Therefore, if the owners take their personal time in the property during the peak months, the projected income will not be achieved. We therefore recommend that if you intend to stay in the property yourself, use it out of season to maximize income in peak months.
You can read more tips on tax essentials for vacation rentals from Moore and Smalley experts here, while you can read more about Jamie Cowan’s experiences running a vacation rental business by clicking here.