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Investor Guide to Serviced Accommodation / Short Term Lets

Man searching for Airbnb serviced accommodation on macbook

Serviced accommodation refers to fully furnished properties available for short-term let. It’s a term popular with property investors, and can be used interchangeably with short-term lets.

Short-term lets range from holiday cottages, home stays and self-catering apartments and houses. They cater for the needs of tourists, those travelling for work, or people needing overnight accommodation. Since the advent of Airbnb and other online platforms, guests have increasingly used them for short stays as an alternative to hotels and B&Bs.

In this article, I explain how serviced accommodation works, and its pros and cons for the owner compared to the traditional long-term single lets. I do this from the perspective of someone who was an Airbnb Superhost, and is currently a landlord.

I also discuss the new rules for short term lets, which Michael Gove and Julia Lopez confirmed in February 2024 and also the changes to the tax rules for rental income from properties that qualify as Furnished Holiday Lettings that were announced in the 2024 Spring Budget on 6 March 2024.

Last updated: 8 March 2024

New increased regulation for short term lets in 2024

There have been calls from a range of organisations, commentators and politicians for greater regulation of the sector. This is because they perceive detrimental effects on the local availability of housing for renters and first-time buyers. The government has referred to it as a “hollowing out” of communities.

Two consultations for increased regulation of short term lets were completed in 2023, and the government announced the preliminary results of consultations on 19 February 2024, with the following changes “being introduced from this summer”, ie the summer of 2024, and before the general election:

1. Confirmation of new C5 Class for short-term lets in 2024

The Department for Levelling Up completed a consultation in 2023 on introducing new use class for short term lets (C5) and associated permitted development rights which would work on similar basis to Article 4 Directions for HMOs. Existing properties would automatically fall into class C5, assuming they meet the definition.

Michael Gove confirmed on 19 February 2024 “planning permission will be required for future short-term lets”. However, homeowners would “still be able to let out their own main or sole home for up to 90 nights throughout a year without planning permission”.

The announcement stated there will be a “new planning use class for short-term lets not used as a sole or main home”. Existing dedicated short-term lets will automatically be reclassified into the new use class and won’t need a planning application.

The Government also intends to introduce associated permitted development rights to allow for a property to be changed from a short-term let to a standard residential dwelling. Another PD right would allow a property to be changed to a short-term let. Local authorities would have the ability to remove these permissions and require full planning permission if they deem it necessary.

2. New mandatory registration scheme for short-term rental properties in 2024

The Department for Culture, Media & Sport carried out a consultation on a registration scheme for short-term lets in 2023. The government announced on 19 February 2024 that a “new mandatory national register will give local authorities the information they need about short-term lets in their area. This will help councils understand the extent of short-term lets in their area, the effects on their communities, and underpin compliance with key health and safety regulation”.

The government response to the consultations will include “full details of the measures”, when it is published, including the timeline for implementation of the register, which will be “from this summer” [2024]. The Government is also considering how to apply the register so it “does not apply disproportionate regulation for example on property owners that let out their home infrequently”.

The statutory framework is already in place as the Levelling-up and Regeneration Act 2023 (LURA), which received Royal Assent on 26 October 2023, included wording that enables the Secretary of State to introduce secondary legislation to create a register of “short-term rental properties”. LURA defines a short-term rental property as a dwelling or part of a dwelling provided by a host to a guest for use by the guest as “accommodation other than the guest’s only or principal residence”. 

5 stars on blocks to mimic reviews of serviced accommodation and short term holiday lets

The key difference between short-term lets and assured shorthold tenancies, is that short-term lets are not the guest’s only or main residence.

The Department for Levelling Up published a consultation on 12 April 2023 changes to planning law for short term lets. The definition proposed in that paper for short-term lets is:

“use of a dwellinghouse that is not a sole or main residence for temporary sleeping accommodation for the purpose of holiday, leisure, recreation, business or other travel”.
DLUHC Consultation

How do short-term lets work?

Guests pay to stay in the property, which is fully furnished and inclusive of amenities, housekeeping, and other services. They typically book on third party platforms, such as Airbnb and booking.com, as well as more local holiday lets providers. The provider pays all of the fees associated with this, although often the guest will pay an additional amount to cover cleaning.

This means that the serviced accommodation provider pays for all utility bills, wifi, linen and cleaning.

In contrast to assured shorthold tenancies, serviced accommodation and short-term lets are usually excluded from the Housing Act 1988 as the property is not the guest’s principal home. The guest typically stays between one night and a couple of weeks, as holiday makers or business travellers.

Serviced accommodation requires a lot of management, with guests constantly coming and going. The units need cleaning in between guests, and linen replacing. Due to this high amount of work, providers often use a specialist management company. An example is CambHost, a specialist short-term let management company in Cambridge, which I personally used when I let a flat on Airbnb in 2019.

The money earned is taxable income in the UK if you host as an individual.

It is also a popular strategy for those providing accommodation on a rent to rent basis.

Pros and cons of serviced accommodation in the UK

Advantages of short-term lets over long term letting for investors

1. Tax advantages of furnished holiday lets (until April 2025)

One big advantage of serviced accommodation in the UK has been its tax advantages over single lets, provided the property qualify as furnished holiday lettings. This means the property must be furnished, and available for at least 210 days in the year, and actually let for at least 105.

If it qualifies as furnished holiday lets and the owner is an individual, the Section 24 interest relief restriction have not applied. This means they will be able to set off the full mortgage interest payments against profits (see my explanation on Section 24 here).

Other advantages of the regime have been that the investors can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, relief for gifts of business assets and relief for loans to traders). They have also been able to claim plant and machinery capital allowances for items such as furniture, equipment and fixtures. Finally, unlike unincorporated landlords, any profits have counted as earnings for pension purposes, regardless of whether the investor owns the property in their own name or via a limited company.

There has been much criticism of the preferential tax treatment of short term lets compared to residential lettings by unincorporated landlords, and it is difficult to see why the provision of homes should be treated less favourably than providing short term lets.

The government announced in the Spring Budget on 6 March 2024 that they will “abolish” the Furnished Holiday Lettings tax regime with effect from 6 April 2025 for Income Tax and Capital Gains Tax, and 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains.

This will eliminate the tax advantage for both unincorporated investors and incorporated investors who let out short-term furnished holiday properties over landlords who let out residential properties to longer-term tenants.

The Spring Budget 2024 Policy Costings document confirmed that the following aspects will be abolished:

  • The exemption from finance cost restriction rules
  • The beneficial capital allowance rules
  • The access to reliefs from Capital Gains Tax
  • The inclusion of relevant UK earnings when calculating maximum pension relief (for unincorporated investors)

No further detail has been published. Watch this space as I will update this post when the new draft legislation is published.

2. Less regulation

Furnished holiday accommodation in England is also not currently subject to the same regulations as the private rented sector, as they are not subject to the Housing Act 1988. Assuming they are not the guests’ primary or main residence, and/or it’s genuinely a holiday let, it won’t be an Assured Shorthold Tenancy and the protections for renters in the Housing Act 1988. They also won’t be “residential occupiers”, which means the rules relating to unlawful eviction and harassment in the Protection from Eviction Act 1977 will not apply to the guests.

If anything, the regulation comes from the feedback given by guests on Airbnb, booking.com and TripAdvisor, where a negative score, whether fair or not, can have a drastic impact on future bookings. Therefore standards of repair and decor are often higher in serviced accommodation than in rental accommodation.

>> Related Post: What exactly is an Assured Shorthold Tenancy?

>> Useful Resource: Government Guidance on Furnished Holiday Lettings (2023)

3. Higher income (theoretically)

Another big advantage is that it is often possible to charge more for serviced accommodation than single lets under a tenancy agreement. It is a way of potentially increasing the yield on a property in areas where there is more demand than supply, and rents are comparatively low.

4. Flexibility

It is useful if the owner still needs to use the property, as a way of obtaining an income from the property when it is empty. This is how Airbnb originally developed, before individuals putting their properties on Airbnb for short periods became increasingly replaced by professional providers of serviced accommodation.

Disadvantages of short-term lets v long-term letting for investors

guest stayiing in airbnb serviced accommodation
Serviced accommodation is part of the wider tourism industry, and with that comes different pressures

There are certainly some disadvantages of serviced accommodation, and I speak from experience here as a former Airbnb SuperHost.

1. Higher upfront costs

Unless you are putting a property you already own and live in onto Airbnb, the upfront costs are high. The property will need to be furnished to a high standard, including the kitchen equipment and soft furnishings. This is expensive.

2. Higher ongoing bills

Bills are high in serviced accommodation. Although short-term self-catered lettings usually qualify for business rates, and not council tax, all bills are payable by the provider.

I found with my flat that guests would have the heating on high, and use a lot of water. They had no incentive not to use it, unlike tenants who usually pay their own bills (apart from HM0s). I had a Google Nest thermostat, which meant I could turn down the heating remotely, but the bills were high.

There is also the cost of wifi and TV subscriptions to Netflix or Sky, if you want to offer that service.

The cost of the cleaning paid by the guests was not enough to retain “sparkling clean” status, so I subsidised this.

I found there was considerably higher wear and tear on my flat and all the furnishings, than with tenants. Anyone considering SA needs to factor this into the ongoing operating costs.

Finally, there’s the cost of the extras, like soap, hot drinks, shampoo and loo roll. It does all add up.

3. No regular rent

Whereas once you have a tenant in a single let, you know they are likely to stay on average for around 4 years, there are no guarantees with serviced accommodation.

It remains vulnerable to changes in demand, particularly at a time when people are cutting back on discretionary income for travel. After a few years of “staycations” being popular, it remains to be seen if this will continue, given we’re in a cost of living crisis.

Is now the time to be placing all your chips on a precarious form of income?

4. Void periods

Serviced accommodation is vulnerable to void periods, even the loveliest properties at the best of times. For instance, if someone books for a long weekend, it mean the property won’t then be available for someone who wanted it for a week, or a month.

It can therefore be hard to get high and efficient occupancy, without moving to weekly lets. However, the problem with weekly lets is that people do often only want to stay for the weekend. It depends on the demand where you’re located.

Final thoughts on short-term lets

Short-term letting has been booming, with a 40% increase in the number of holiday lets in England since 2018. It’s become big business.

Serviced accommodation has many benefits. However, it is considerably more stressful to operate than single lets, with the constant anxiety about the next review. This is true, even when professional agency manages the property.

Apart from corporate lets, serviced accommodation is part of the wider tourism industry. This brings with it all of the demands of dealing with a demanding public.

If relations deteriorate with a tenant, there’s no lasting impact. However, a few bad reviews can have a disproportionate impact on future bookings.

Finally, new regulation has now been confirmed, and the tax advantages are ending, so investors should take this into account when appraising future projects.

Photo of double bed in nicely presented serviced accommodation short term let
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