You CAN still make money from a second property: How one owner nets £80,000 profit a year – and the loophole to avoid a huge council tax bill

Next week is school holidays and looks set to be a summer holiday for many, with EU customs queues chaotic and a heatwave continuing in Britain.

While some British families head to holiday homes or B&Bs, others may be renting a house for a week or two, especially in seaside towns with a high proportion of holiday homes such as Scarborough and Salcombe.

But while the ultimate convenience is swinging up to your own home, with your paddleboards and beach towels ready and waiting, owning your own vacation property now incurs much higher costs than it did a decade ago; This is reflected in the decline in the number of second home owners in the UK and the glut of sales.

Changes to stamp duty (the surcharge for additional properties increased from 3 per cent to 5 per cent in 2024), as well as 100 per cent council tax premiums for second home owners in some English councils, have made property more expensive. Along with the extra taxation, there are also increased renovation costs and higher energy bills.

A survey by Sykes Holiday Cottages found that 71 per cent of homeowners who do not rent out their properties are considering doing so; So what are the real costs of ownership to consider?

Research from Equity Residences, a property shared ownership fund, found that buying a second home for £2 million in the UK could mean an additional cost of £1.2 million over five years, resulting in £370,000 in purchase costs (stamp duty, legal fees and survey) and £83,000 in annual running costs (including council tax) and an extra £450,000 in losses over five years that could be invested in ten-year gilts. suggests that it occurs.

This is before exit taxes, estate planning, renovation or furnishing costs. A higher rate taxpayer selling after a gain of £400,000 could face a sample capital gains tax bill of around £96,000, while a single owner could be exposed to potential inheritance tax exposure of more than £670,000 on an estate worth between £2 million and £5 million.

He is letting Wolf Cottage out through Sykes Cottages, which manages the property.

These are big numbers (and estimates) for a high-end property, but what kind of costs are realistic in a more typical holiday home?

Tim Milwood, who owns two properties in Weymouth, Dorset, shared the costs of running a holiday home, as well as how letting it out with some leftovers covers the costs.

In 2022, he used an inheritance from his mother to buy Wolf Cottage, a three-bedroom, two-bathroom property near the harbour. It was ‘tired and old’ and cost £250,000.

What started as a holiday home for herself, her husband David, and their two children has turned into a successful holiday rental (via Sykes Cottages), reaching an 80-90 percent occupancy rate. Even after renovation costs, this represents an efficiency of 10 percent.

Each year the costs are £4,000 for utilities, £1,000 for insurance, £6,000 for maintenance, £1,000 for accounting and professional fees plus the high turnover of short holiday guests: £12,000 for change, £8,000 for commission to the letting agent and £1,000 for guest hampers.

The couple pay business taxes rather than council tax and make a gross annual profit of £40,000. They are achieving the same with Otter Cottage, the second property they started renting last year, which they hope will help fund early retirement.

Tim, 43, who works in advertising, says: ‘Despite our day jobs we are very busy and love entertaining guests. We account for funds to keep properties in excellent condition. A chimney repair last week cost £2,500.’

It says the loss of Furnished Holiday Rentals tax breaks last year has ‘tightened margins’. With frequent government changes often blamed for problems with local housing shortages, second home owners never know what tax changes may be on the horizon. ‘Understand the costs before you buy and have an emergency fund for nasty surprises,’ he advises.

This uncertainty has been seen in Wales, where councils have been able to triple council tax rates for second home owners. In Pembrokeshire, this rose to 200 per cent in 2024 but fell to 150 per cent last year as it proved disastrous for local tourism.

But there is also increased stamp duty, known in Wales as Land Transaction Tax; Tax payable on a £1.5 million second home is £186,200; this is much more than the £111,750 for the main house.

Ray and Claire Duckworth have bought a three-bedroom lodge at Dylan Coastal Resort in Carmarthenshire, south-west Wales.

After years of being deterred by the ‘hidden costs’ of buying a quaint holiday home, they liked the idea of ​​a fixed bill each year.

A number of second homes are now coming on the market in nearby Tenby, says a local estate agent

‘Lots of second homes are now coming on the market in Tenby,’ says Carol Peett, founder of West Wales Property Finders. ‘While this will be devastating for the local economy, for property owners owning a holiday home can only be profitable if you own it for the long term.’

Owners of lodges and caravan parks do not pay council tax, but could owning such holiday properties be more affordable?

Claire and Ray Duckworth from Staffordshire think so. They bought the three-bedroom Luxury Lodge at the Dylan Coastal Resort in Laugharne, Carmarthenshire, where contemporary-style homes cost £375,000.

After years of being deterred by the ‘hidden costs’ of buying a quaint holiday home, they liked the idea of ​​receiving fixed bills every year and recouping them stress-free.

They pay £13,000 a year; £10,000 service charge, £2,000 for utilities and £990 for water and sewerage.

Ray, 63, who is now a grandfather, says, ‘We will earn back the money we paid for the mansion in 13 years.’ ‘We didn’t set out to buy from a park, but I live in an old farmhouse with nine fireplaces. I spend my life fixing things, so I was very cautious about giving myself more. Plus the hostel’s million dollar views were second to none!’

The couple enjoy walking, visiting the on-site spa and restaurant mostly in the off-season, and will use their home for up to three months a year, renting it out during busy summer weeks. ‘This easily covers our costs.’

The resort receives 30 percent of the net rental income to manage the property, which has an annual occupancy rate of 80 percent. The decrease in the value of the property, which has been rented for 100 years, does not bother them: ‘We will transfer it to the family.’