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Farm diversification - holiday let

In years gone by, South Devon was awash with traditional 100 acre mixed farms. Where the farmer and his wife would keep 100 sheep, perhaps a small dairy herd and a handful of chickens. But sadly, in the light of escalating costs and other factors like increased red tape, farming has changed. That’s where farm diversification comes in.

Those willing to diversify and utilise the resources around them, can find ways to supplement their income whilst continuing to nurture the land and live self-sufficiently. Equally, those running more contemporary farming ventures can also expand their horizons and add an additional income via tourism.

For farmers that own empty barns and agricultural outbuildings, there is a real opportunity to embrace farm diversification and diversifying into holiday letting. Converting these unused assets into profitable holiday cottages not only stops these buildings falling into a dilapidated state. It also provides an exciting new business venture, providing valuable funds.

This Q&A will help you make an informed decision on diversifying into holiday letting, covering everything from understanding the tax benefits of having a furnished holiday let (FHL) to agricultural planning permission factors and more.

We spoke to the Rural Professionals Department at Luscombe Maye estate agent for their expert advice on farm diversification – the addition of new business activities to run alongside traditional farming.

Let your cottage with Coast & Country Cottages

Farm Diversification Holiday Letting Advice

Use the quick links below to find out about a particular subject, or continue reading for our complete farm diversification Q&A with Luscombe Maye:

Luscombe Maye is a multi-faceted business offering advice on all types of property, land and farm matters, together with an extensive estate agency and lettings service in South Devon. The Rural Planning department, based in the Totnes office, covers the whole of the South West.

What are the main factors farmers need to consider when looking at diversifying their farm to offer holiday lets?

Butterwell Barn - Farm Diversification

Acquiring the adequate planning permission for your venture is your very first requirement.

In the countryside, planning policy usually restricts residential development to the following:

  • Barn conversions
  • Agricultural/rural worker’s dwellings
  • ‘Enabling’ development
  • The sub-division of existing houses
  • Outstanding/ innovative development

In essence this means farmers looking at undertaking building development to provide a holiday let will be primarily looking at either converting a barn, dividing an existing farmhouse or building a new home which is particularly innovative.

If we can gain consent for an unrestricted residential dwelling – through a traditional barn conversion via a Full application or a Class Q Permitted Development right application – this allows a full residential use whether that is occupied by the owner, let out on an Assured Shorthold Tenancy or a holiday let for self-catering purposes.

As you can appreciate, gaining a full residential permission gives the maximum value as it gives the most flexibility to future occupation.

However, sometimes Local Planning Authorities will not support a full residential use due to the location of the barn in question. Perhaps being close to the agricultural operations of a farm or due to the size of the residential amenity space that can be achieved, and therefore will look to restrict the use of the building to a self-catering holiday use.  This is not problematic if self-catering holidays is the intended use.

What is the ‘Class Q’ permitted development regulation?

Most Local Planning Authorities have a long-standing policy to support the conversion of traditional barns, which are deemed to be a heritage asset, and therefore are supported for conversion to maintain this asset in perpetuity.

In 2014, the Class Q regulation was brought in. Permitted Development rights were introduced to allow all types of agricultural buildings that were in use on 20th March 2013 to be converted into residential dwellings.

Unfortunately, Class Q is not permitted universally – for instance it is not applicable within National Parks, AONBs, SSSIs, Conservation Areas or for Listed Buildings.

However, it is applicable to all types of agricultural buildings including more modern buildings, so it could be a very useful regulation in terms of acquiring planning if your asset is not in one of the unpermitted areas.

What are the tax benefits to having a holiday let?

Butterwell Barn Furnished Holiday Let

Once we have gained consent for a residential/self-catering holiday use, land owners will need to register for Business Rates if they intend to offer the property for more than 140 days per year.  If the property is going to be offered for less than 140 days per year, then the property can be registered for Council Tax instead.

However, after the Covid pandemic, when small businesses gained grants from Local Authorities, it was more beneficial to be Business Rated as the grants were not forthcoming for those registered for Council Tax.

In England, if your property is available to let for short periods that total 140 days or more per year, it will be rated as a self-catering property and valued for Business Rates.

If the rateable value of your property is less than £12,000 per annum, you will get full Small Business Rate Relief and therefore pay no Business Rates; for properties between £12,001-£15,000 the rate of Relief will go down gradually from 100% to 0% on a sliding scale.

If your self-catering holiday project is going to be funded by some borrowing, then it is essential that you work with an agency like Coast & Country Cottages to gain a potential booking schedule, including the number of weeks and the likely price per week, to prepare a business plan that is robust enough to present to the bank.

If the turnover of your business is greater than £85,000 for 2021/22, then you will need to be registered for VAT and therefore there is an opportunity to claim back the VAT on any expenditure but, equally, you will be deemed to be charging VAT on the holiday let income received.

Read our guide to Furnished Holiday Let Tax 2022 for more information.

What other types of holiday accommodation are worth considering when planning my farm diversification?

We have worked on a large number of holiday diversification schemes – from shepherds huts, yurts and pods through to single barns and huge complexes of barn conversions with swimming pools, games rooms etc. – and all of those have a place in the market.

Depending on where they are located, the facilities that you are going to provide and the supply of other holiday accommodation in the area will reflect on the likely income/price achieved per week and general occupancy across the year.

It is best to work in conjunction with Luscombe Maye as your adviser, together with Coast & Country Cottages, to achieve the best occupancy and price per week, working alongside your accountant to ensure that the VAT and Capital Taxes position are managed to your best advantage.

What are your top tips for owners thinking of diversifying their farm to offer self-catering accommodation?

Feeding chickens on a farm

Self-catering holiday accommodation can provide an excellent income and can be very rewarding if you are a people-person, but consider the demands on labour.

When planning your accommodation and how you will service it, think carefully about logistics and make decisions accordingly. For instance, consider whether you need to add a new laundry room into your plans, where you can handle the linen.

This is particularly important if you are taking back-to-back short breaks, which can increase profits but adds washing! Of course, a good agent like Coast & Country Cottages can take care of this everyday running of your holiday let if you prefer.

Being on the farm also offers you a unique selling point. The popularity of TV programmes like ‘Clarkson’s Farm’ on Amazon, Channel 5’s Our Yorkshire Farm and BBC’s Countryfile show the genuine interest the general public have in day-to-day farming life.

Activities farmers take for granted like feeding chickens, collecting eggs and tending to sheep will be loved by all generations of holiday makers, and will help secure repeat bookings.

What services can Luscombe Maye offer farmers considering diversifying in to holiday letting?

Our team are on-hand to provide expert planning advice and prepare planning applications for a variety of proposals. Including new dwellings, barn conversions, diversification schemes, equestrian schemes and agricultural applications for buildings, tracks, farmhouses and Permitted Development right applications like Class Q.

Our team provides advice on the best way of achieving planning permission. Whether this is through a Pre-Application Enquiry, an Outline application, a Full application or using your Permitted Development rights.

We then work with either one of the excellent architectural firms that we have in South Devon. For more simple applications, use our in-house architectural skills.

We work with a large number of consultants who deal specifically with drainage, highways, ecology, landscaping etc. to therefore present your planning application in the best possible light with the Local Planning Authority.

Our expertise has been developed over many years and we will work alongside our land/property valuers, to ensure that the permission gives you the best possible enhancement to your property’s value.

What services can Coast & Country Cottages offer farmers looking to diversify into holiday letting?

With over 20 years’ experience, our local team of experts can help you plan your holiday letting business venture from start to finish.

We will meet you and visit your land to understand your business requirements. From there, we can help you plan your build, to provide fantastic self-catering accommodation that meets your needs and budget.

We can offer advice on the optimum number of bedrooms and bathrooms. Provide you with an inventory of what to include in your holiday cottage, and help you decide on furnishings that will stand the test of time.

From knowing the best materials for easily cleaning off mucky paw marks, to understanding which fabrics won’t show quick signs of wear and tear. We’re on-hand to help.

We can also provide income appraisals based on the rental potential of one or multiple properties, so you know what to expect from a holiday letting business.

Case study: successful farm diversification

Butterwell Barn Case Study

Read our Q&A with the owners of Butterwell Barn, an award-winning barn conversion near Dartmouth, for inspiration on how you can start a successful holiday letting business on your working farm.

Let your cottage with Coast & Country Cottages

Setting up a holiday letting business may seem like a daunting venture, but with specialist help and guidance, you can rest-assured you’re in safe hands.

At Coast & Country Cottages, our team of local holiday letting experts works alongside trusted businesses across South Devon, such as Luscombe Maye, to make sure you receive the best possible experience throughout your holiday letting journey.

That’s why we’ve answered some of your top queries in our holiday home owner blogs: