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  • Writer's pictureRobin Lawson

Is Serviced Accommodation a Good Property Investment?

Updated: 2 days ago

Should I Invest in Serviced Accommodation in Newcastle and the North East?


Property investment has long been a favoured route for building wealth and securing a comfortable retirement. With traditional pensions often falling short, many investors are turning to property portfolios as their retirement pots. Popular options include buy-to-lets, commercial property investments, and furnished holiday lets. Recently, a new contender has emerged in the market: serviced accommodation. This sector is experiencing significant growth and presents an intriguing opportunity for investors.



What is Serviced Accommodation?


Serviced accommodation refers to short-term lets, typically less than 90 days, although longer stays are possible. These properties offer hotel-like standards at a more affordable price, providing guests with more space and a homely feel. Essential features include a fully fitted kitchen, living area, bathroom, TV, WiFi, all utilities, and housekeeping services.


Why is it a Good Property Investment?


Investing in serviced accommodation can yield higher returns compared to traditional buy-to-let properties. In fact, the returns can be two to three times greater. This makes serviced accommodation a good property investment, especially for those looking to maximise their capital outlay.


What are the Downsides?


While the potential for high returns is appealing, there are some downsides to consider:


  1. Consent to Let: Ensure there are no restrictions from your lender or lease agreement regarding letting the property as serviced accommodation.

  2. Tenant Issues: Inappropriate tenants or local resistance to your plans could pose challenges.

  3. Void Periods: Serviced accommodations may experience longer void periods compared to buy-to-lets. However, higher rental charges can offset this.

  4. Furnishing and Facilities: The property must be fully furnished and provide amenities equivalent to a hotel, including good quality TV, bedding, towels, and a fully equipped kitchen.

  5. Management: Consider who will handle bookings, guest access, laundry, cleaning, and guest reception. While some investors manage these themselves, many opt for a management company.


Upcoming Changes in Mortgage Interest Tax Relief


An important update for property investors is the upcoming changes in mortgage interest tax relief for personally owned properties. From April 2025, mortgage interest on Furnished Holiday Lettings (FHLs) will no longer be treated as a direct deduction from rental income. Instead, relief will be given as a 20% tax credit. This change means that higher and additional rate taxpayers will see a reduction in tax relief from 40% and 45% respectively, which is a significant shift from the current system.


What Else Do I Need to Know?


VAT Implications: Income from serviced accommodation is subject to VAT. If your turnover exceeds £90,000 annually, you must register for VAT. Using a flat rate of 10.5% or the Tour Operators Margin Scheme can reduce your VAT liability.


Tax Advantages: If your property meets the FHL criteria, you can benefit from several tax advantages:


  • Capital Gains Tax Reliefs: Qualify for trader reliefs on disposal (e.g., business assets roll-over relief, business asset disposal relief, gift relief). Seek advice to understand conditions.

  • Capital Allowances: Claim capital allowances for plant and machinery, fixtures and fittings, and integral features, setting off costs against rental income for tax purposes.

  • Pension Contributions: Income from FHLs counts as earnings, allowing for larger tax-deductible pension contributions. Consult a tax advisor due to the complexity of pension rules.

  • Interest Relief: Currently, you receive tax relief at your top income tax rate on mortgage interest and finance costs, but this will change from April 2025 to a 20% tax credit.


Is It Worth Investing in Serviced Accommodation?


Serviced accommodation is indeed a good property investment, offering numerous advantages. Location is critical—ideal spots attract families on holiday or professionals working away from home, providing a steady stream of guests. If you choose your location wisely, serviced accommodation can be a highly lucrative addition to your property portfolio.


Clarice Carr & Co is here to help you navigate these opportunities and make informed investment decisions. Contact us today to discuss how serviced accommodation can be a valuable part of your investment strategy.


Want to know more? Check out our website or get in touch.

 

Frequently Asked Questions

What are the tax advantages of investing in serviced accommodation in the UK?

How does the upcoming change in mortgage interest tax relief affect serviced accommodation investments?

Is serviced accommodation a good property investment compared to traditional buy-to-let?

What should I consider before investing in serviced accommodation in the UK?

Do I need to register for VAT if I invest in serviced accommodation?


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