Serviced accommodation is a type of property that is fully furnished and is offered both for short and long-term let. it might include facilities similar to those offered at hotels. These types of properties are mostly rented by companies who need to temporarily provide accommodation to their employees away from home or as a holiday let.
An investor can hand over the property to the expert rental agent for management to take care of everything such as booking, meeting, and greeting clients and sometimes even furnishing the property.
Although anyone owning the property can theoretically convert it into a serviced property. The location has a very significant role in it. As Holiday lets flats need to be in ideal and desirable places so that people could stay there, in the like way, serviced flats of those dealing with corporate clients need to be in cities or places with a strong commercial base. This type of accommodation can prove fantastically profitable for you if you achieve a high level of occupancy. For instance, if you build a seaside cottage, it will be easy for you to fill up the summer months. But at the same time, you can then make real money if you somehow manage to fill it up the rest of the year, albeit at a lower nightly/weekly rate.
Features and Amenities of Serviced Accommodation
Serviced apartments offer an array of amenities to cater to the unique needs of diverse travelers. Guests can expect spacious, well-furnished living spaces encompassing living rooms, bedrooms, fully-equipped kitchens, and private bathrooms. Additional amenities often include laundry facilities, Wi-Fi, and housekeeping services. However, many serviced accommodations provide access to on-site facilities such as a swimming pool, gyms, and parking areas.
Ideal for families and business travelers: given its versatility, many families and business travelers feel excited to enjoy a productive and comfortable environment during extended stays while families can benefit from additional space and amenities that surpass those offered by traditional hotel rooms. The home-like atmosphere and self-catering facilities contribute to the appeal of serviced accommodations for stays and vacations.
Advantages of investing in the Serviced Accommodation
- Reliable rental income potential. Generally, rents from serviced accommodation are much higher than they would be for letting accommodation on the long-term let of a similar property.
- Offers strong yield potential. Serviced accommodation generates higher rental income.
Knight Frank says that the ratio of the profitability of the serviced accommodation sector outperforms the regional UK hotel market. According to them, serviced accommodation achieved a GOP margin of 43% for the 12 months to May 2022.
- The serviced accommodation sector is increasingly growing within the accommodation market. Compared with hotels, the trend of people staying in serviced accommodation is increasingly growing as people are realizing the benefits of staying in serviced accommodation. The serviced accommodation not only provides a bedroom but also living space and kitchen facilities.
According to the recent report issued by Global Serviced Apartment Industry, serviced apartments are more popular than ever. They further said that the use of large corporate hotel accommodations is falling while the use of serviced accommodations is increasing.
- New technological inventions are making it much easier to find and manage serviced accommodation lettings. For example, platforms such as Vrbo, Airbnb, Booking, and Expedia can all be used to market your service apartment and manage bookings.
- Tenancy laws and regulations are broadly advantageous to landlords when it comes to short-term lettings. Generally, serviced accommodation is let on an informal license basis rather than an Assured Shorthold Tenancy or AST.
- Thanks to the flexibility of the setup, serviced accommodation appeals to both short and long-term tenants, meaning it is easier to find the tenants.
- Serviced accommodation offers tax benefits. For example, serviced accommodation may be considered a furnished holiday let (or FHL), meaning you can claim mortgage interest as a tax allowance. This is in direct contrast to standard buy-to-let where Section 24 restricts tax allowances for mortgage interest.
With serviced accommodation, it is possible to make saving by paying business rates in place of Council Tax. There also could be potential opportunities to mitigate Inheritance Tax and Capital Gains Tax. Before investing in serviced accommodation, it is essential to get help from professional experts to know about the advantages and disadvantages involved in it.
Disadvantages of investing in the serviced accommodation
Renting out serviced accommodation has a huge potential to be part of a profitable property strategy but at the same time, like all other investments, there are a few risks involved in it you should be aware of.
- Void periods: perhaps the greatest worry that almost all landlord face concerning serviced accommodation is void periods. A void period is a period when no one is letting the property, it will be empty, producing no income while incurring costs in the form of service charges.
- Mortgage restrictions: If you have a mortgage, before you begin renting as a serviced accommodation, you need to make sure that the terms and conditions of the loan permit this.
- Lease restrictions: if your property is leasehold, you should check the terms of the lease to make sure that serviced accommodation short-term lets are permitted.
- Involves hard work: if you lived nearby and decide to personally manage your furnished apartment rentals, there is going to be a lot of work involved. Majority of those who let their property as serviced accommodation prefers to employ a management service.
Tax advantages of serviced accommodation
Yes, there are tax advantages for serviced accommodation provided that its income fulfills the criteria for furnished holiday lettings (FHL) tax treatment. The rules of FHL are:
- The property must be available for at least 210 days per year for letting.
- Actually, the property must be let for at least 105 days a year.
- During the year, the property must not be let to the same person for more than 31 consecutive days for more than 155 days.
If your property manages to satisfy the given criteria then you can take tax advantages attached to FHLS:
- You will qualify for capital gains tax trader reliefs on the disposal of the property ( business asset disposal relief, business assets roll-over relief, gift relief). Take care to seek advice before disposal if you want to take advantage of one of those beliefs as conditions apply to each relief.
- You can claim a capital allowance for any machinery and plant, fittings and fixtures, and integral features expenditure incurred. These allowances are not available for buy-to-let properties. Usually, it means you can set the cost off in full against the rental income in the purchasing year for corporation or income tax purposes.
- Income from FHLs is considered earnings for pension purposes. That means you can make larger tax-deductible contributions to your pension scheme. It is imperative to seek expert advice on tax in this area as rules for pension are complicated and you may be subject to some other restrictions.
- There are no restrictions on interest for loans taken out on FHLs. That means you get tax relief at your top income tax rate on mortgage interest and finance costs.
Is it trade business or investment?
There are a few important conditions to meet to qualify your self-catering into a trading business.
- Commercial Operation: Carry on business on a commercial basis to make a profit.
- The pattern of occupation: total periods of longer-term occupation must not exceed 155 days during the relevant days which is approximately 155 days. A period of longer-term occupation is permitting the same person to stay for longer than 31 consecutive days.
- Availability: the accommodation must be available for commercial letting as vacation accommodation for the public for at least 210 days during the relevant period.
- Letting: the property be commercially provided to the members of the public to spend holiday accommodation for at least 105 days during the relevant period.