Finance for Hotel Rooms

Hotel rooms are usually treated as commercial property by lenders and commercial lending is available from many lenders, subject to status, up to 80% loan to value. Typical commercial lenders that we work with include Royal Bank of Scotland, NatWest, Salt Commercial, UBS and others.

Investing in a Hotel Room – Buying Privately

Buying a hotel room privately is relatively straightforward and is not much different to purchasing a buy-to-let property.

Mortgages for private buyers are available on typically 50% to 70% or greater loan to value.

If the hotel room has VAT applicable, then the VAT reclaim service provided with most hotel room investments is commenced. In some cases, the developer funds the VAT on the purchase and, in others, a short-term bridging loan is provided as part of the finance application before the VAT refund is provided by HMRC. On an ongoing basis, the VAT service that comes with the hotel room would deal with quarterly VAT returns.

Investing in a Hotel Room – Buying via a Pension/SIPP

Buying a hotel room via a pension is again relatively straightforward provided you use an experienced and competent pension provider and one that is not averse to property or one that is trying to limit you to its own investments rather than being a true self invested pension. Assetz Finance Limited can provide an introduction to pension providers who are competent and very cost-effective in property investment if you encounter any difficulties with your present pension provider or financial adviser.

Some pension providers prefer not to permit investments in hotel rooms with kitchens included as HMRC documentation on the subject is unclear at best. Until this is proven with some legal cases, most pension providers prefer to only permit hotel rooms without kitchens. In addition, hotel rooms that have the option of personal use must have a specific and modified lease provided that strictly forbids personal use, as otherwise HMRC will deem aspects of the property as taxable, which will lead to all sorts of complications and costs within your pension. If you wish to use the property privately, then purchase the property privately rather than through your pension.

When you decide upon a hotel room investment, you need to make sure that your pension is fully funded for the purchase. This means ensuring there is enough cash to carry out the purchase other than any finance being provided. It is only when the pension is fully funded that the pension trustees are likely to permit the purchase to go ahead. Investors often option a property personally but cancel this option when the pension goes ahead with an official reservation. This reservation is issued by the pension trustees, not by the individual investor, as it is the pension trustees that are buying on behalf of the investor using the investor’s pension fund monies. Solicitors are instructed and a lending application is commenced.

Mortgages for private buyers are available to pensions on a limited basis according to HMRC rules. These rules permit a pension to borrow 50% of its net assets prior to the property purchase and this can mean that a small pension could borrow as little as 33% of the property price. For example, if the pension had £40,000 of net assets within it, then it could borrow an additional 50% or £20,000 to then purchase a £60,000 property (costs ignored for purposes of simplicity).

The good news is that the net assets within the pension have come after tax relief and, for an upper rate taxpayer, they will have only made a contribution of 60% of the net assets with the remaining balance having been contributed by the taxman, HMRC. In the above example, the £40,000 of net assets would have been made up of a net contribution by the investor to their pension of £24,000 with the remaining £16,000 being made up of tax relief. In other words, for every £1 invested into a pension for an upper rate taxpayer with a suitable amount of tax to reclaim, they are achieving £1.66 of assets within their pension after the tax relief. The investor could look at this in a different way and say that they purchased the £60,000 property with just £24,000 investment, a further £16,000 contributed by HMRC out of their tax bill already paid, and then a further £20,000 of loan. Specific circumstances vary and you should seek professional advice on your pension fund situation.

Please refer to Assetz Finance Limited for any SIPP/SSAS and other pension advice and for introductions to competent, property asset based pension companies.

What you may not know is that you may already have funds available that could represent a significant part of the investment in a lower cost hotel room, should this be suitable for your investment purposes. As of 1st October 2008 anybody who has opted out of Serps many years ago could find that they have typically £20,000 to £50,000 within their ‘protected rights’ pension and that this can now be transferred to a SIPP or SSAS personal pension for self investment. Many investors have forgotten about this investment and Assetz Finance Limited would be pleased to review your protected rights situation.

Finally, as is the case with private hotel room investment, if the hotel room has VAT applicable, then the VAT reclaim service provided with most hotel room investments is commenced. In some cases, the developer funds the VAT on the purchase and, in others, a short-term bridging loan is provided as part of the Finance application before the VAT refund is provided by HMRC. On an ongoing basis, the VAT service that comes with the hotel room would deal with quarterly VAT returns.

 

Online Articles on Hotel Room Investment

Newspaper articles on this booming sector

• Gloom or boom for budget hotels? - BBC
• A budget boom for the hotel market - Mintel
• A room with a view to a profit - Guardian
• After London, buy-to-let hotel rooms go nationwide - Telegraph
• Buy-to-letters check in to room service - Telegraph
• Bed and benefits - Investors Chronicle
• Axa SIPP allows investors to buy hotel rooms - IFAOnline
• Hotel room bug bites Aegon sipp - IFAOnline

Hotel Rooms in Pensions/SIPPs

Hotel Rooms As A Pension Investment

Hotel rooms are classed as commercial assets and are one of the very few property types allowed to be purchased directly by a pension/SIPP. Investors can purchase a room through a Self Invested Personal Pension (SIPP) either individually or in a group and take advantage of the tax relief available upon the income and capital growth. A pension investment could receive up to 66% income tax ‘top-up’ (for a 40% tax payer) on their contibution, as a tax refund from HMRC. Read More on Hotel Room Finance