Business RatesLeisureTax Ratings

Is Airbnb a Better Option for Landlords than Buy to Let?

By March 2, 2021 No Comments

Early last year, before the UK felt the full force of the pandemic, ARLA Propertymark released a report which suggested that large numbers of landlords were likely to switch to short-term lets (STL). Active Airbnb listings had risen from 168,000 in 2017 to 223,000 the following year.

Changes to tax rules governing mortgage interest relief and capital gains tax have already affected landlord’s investments, but now Covid-19 is presenting landlords with further challenges. According to research, almost two-thirds feel reluctant to consider new buy to let (BTL) investments.

One impact of lockdown and other Covid-related restrictions has been non-payment of rent combined with greater protection from eviction for tenants under the Coronavirus Act 2020. This has squeezed landlords’ income.

Another impact is the rise of working from home (WFH), which in some areas has led to an exodus of potential tenants out of city centres. The overall number of lets in London is down 25%, for example.

The National Landlords Association reports that 66% of British private landlords expect the pandemic to affect them negatively.

Should this make STL, and going down the Airbnb route, a more attractive option?

Are Short Term Lets a Better Option?

Until the pandemic hit, short term lets were booming. They offered landlords greater flexibility and the potential for bigger returns.

STL and furnished holiday lets (FHL) provide property investors with an alternative to both traditional BTL and flipping properties (buying, renovating and selling on).

The rise of Airbnb has driven further growth in the FHL market, as the platform makes it easy for landlords to market and manage their properties.

One of the advantages of FHL is around tax. Landlords can offset mortgage costs against taxable gains and Capital Gains Tax can be reduced if classed as a business asset.

Yields can be greater than BTL too. According to the Buy Association, in 2019 yields in Liverpool achieved 27.5% based on an occupancy rate of 50% of the year.

The Airbnb model also reduces the risk for landlords of non-payment or having to make costly evictions.

Is there a Sting in the Tail for Airbnb?

Whether an FHL or STL is Airbnb or not, it falls under the business rates regime. Any property available for 140 days or more for STL or FHL is rated as a business property. In London, this is 90 days.

The Valuation Office will calculate its rateable value based on property type, size, location and receipts and expenditure.

Consequently, the success of your FHL or STL as an ongoing business, rather than simply a property investment, may have an impact on what you are liable to pay in rates.

Therefore, if you opt for the Airbnb model for your short term let, you must balance the convenience against the commitment it requires and what you can make compared to what it will cost you.

Are there Advantages to Business Rates?

The business rates regime as it stands gets a bad press, with many retailers in particular stating that it will threaten their survival, post-Covid.

But for the short term letting landlord, it can work in their favour.

A property with a rateable value under £12,000 does not pay business rates under Small Business Rates Relief. For those properties with rateable values between £12,001 and £15,000, the rate of relief is on a sliding scale, between 0% and 100%.  Just be aware however that if you have more than one property you may lose the relief so strategy is all important.

Technically, many FHL and STL properties may be due business rates reductions because the basis on which their rateable value is calculated is challengeable.

This is because the Valuation Office very often rate properties incorrectly as domestic or adopt a predetermined matrix which does not take account of the true nature of the business.

Weighing Up the Options

It is difficult to gain a clear perspective while we are still in the middle of the pandemic. But with the government recently announcing its roadmap out of it, landlords should consider their options for the future carefully.

Part of the decision whether or not to adopt the short term let model should also rest on a clear understanding of the business rates implications of such a move.

The Beattie Partnership offers expert advice and support in rating matters. For more information, please get in touch.

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