{"id":7106,"date":"2025-02-20T15:35:35","date_gmt":"2025-02-20T15:35:35","guid":{"rendered":"https:\/\/www.schofields.ltd.uk\/blog\/?p=7106"},"modified":"2025-02-20T15:35:35","modified_gmt":"2025-02-20T15:35:35","slug":"holiday-let-company","status":"publish","type":"post","link":"https:\/\/www.schofields.ltd.uk\/blog\/7106\/holiday-let-company\/","title":{"rendered":"How to Transfer or Buy a Holiday Let Through a Limited Company"},"content":{"rendered":"Reading Time: <\/span> 6<\/span> minutes<\/span><\/span>

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Following the Government’s March 2024 announcement<\/a> on removing the Furnished Holiday Letting (FHL) rules, there is a growing trend towards holiday let investors looking to transfer or buy a holiday let via a limited company.<\/p>\n

This article provides an overview of the steps involved in purchasing or transferring a holiday let into a limited company structure in the UK. We\u2019ll be highlighting the potential benefits compared to owning as an individual as well as some challenges you may face.<\/p>\n

What is a limited company?<\/strong><\/span><\/h2>\n

A limited company can either be owned by shareholders or guarantors. As a separate legal entity, it offers protection for individuals involved, as it separates personal assets from business assets.<\/p>\n

Benefits of owning a holiday let through a limited company<\/strong><\/span><\/h2>\n

Mortgage interest relief<\/strong><\/span><\/p>\n

Changes due in April 2025 mean that owners will no longer be able to offset their mortgage interest on holiday lets held in their name against profit.<\/p>\n

Holiday lets owned by a limited company can offset the mortgage interest. Depending on the rate of interest and the mortgage, this can be a large amount so reducing the profit will in turn reduce the corporation tax due.<\/p>\n

Favourable tax rate<\/strong><\/span><\/p>\n

Owning a holiday let through a limited company means the company pays 19% corporation tax on profits (based on a taxable profit of \u00a350,000 or less), compared to individuals who pay higher personal tax rates, ranging from 20% to 45%.<\/p>\n

You choose when to draw income<\/strong><\/span><\/p>\n

With the option to use dividends to draw profits from the company, tax liabilities can be controlled more efficiently. You determine the level of tax paid and when it will be due for payment to HMRC. Where you operate your holiday let in your personal name, you have no choice but to declare profits in the tax year they are generated.<\/p>\n

VAT<\/strong><\/span><\/p>\n

If you own, or plan to own, more than one holiday let, you are allowed to own each property in a separate company, and each company has its own annual \u00a385,000 turnover threshold for VAT. This means that you may not need to register to pay VAT, even if the combined income exceeds \u00a385,000 over the year.<\/p>\n

Business rates relief<\/strong><\/span><\/p>\n

If more than one property is owned, and in separate limited companies, you can take advantage of small business rates relief, as each business will be entitled to utilise the \u00a312,000 threshold.<\/p>\n

Reduced stamp duty land tax (SDLT) rate<\/strong><\/span><\/p>\n

When you buy a holiday let property as an individual, you pay the regular rate of SDLT (depending on the property value band), as well as a 5% surcharge (as of 31st October 2024, but remaining as 4% in Wales and 6% in Scotland). \u2014 with no access to the potential benefit of a reduced SDLT rate for any future buyer of your property.<\/p>\n

If you originally acquired your property via a limited company, when selling it, the buyer opts to purchase the company rather than just the property, the SDLT rate will be reduced to 0.5%. This represents a significant saving for the buyer, allowing you to negotiate a better price.<\/p>\n

Inheritance <\/strong>planning<\/strong><\/span><\/p>\n

Owning a holiday let as a limited company allows you to manage inheritance and tax planning. You can gift shares in the company to, for example, your children; affording you more flexibility and fewer complications than if you were to try and give part or all of your holiday property to someone, when owned in your name.<\/p>\n

Reinvest in more properties<\/strong><\/span><\/p>\n

If you have ambitions of owning several holiday lets, you can keep the profits in the company to purchase more properties. This can be advantageous, especially for those who are in the 40%+ income tax bracket and don\u2019t want to increase their personal tax liabilities further.<\/p>\n

Reduced risk <\/strong><\/span><\/p>\n

Limited companies operate as separate legal entities, meaning the liabilities of the company do not extend to its shareholders. This means your personal assets, such as your home and finances are protected.\u00a0<\/strong><\/p>\n

Disadvantages of owning a holiday let through a limited company<\/strong><\/span><\/h2>\n

Costs<\/strong><\/span><\/p>\n

The costs of forming and running a limited company are more than owning a holiday let in your own name. You\u2019ve got to incorporate the company which involves various fees.<\/p>\n

On an ongoing basis, you\u2019ll also have to keep records and submit the required paperwork, such as an annual confirmation statement, statutory accounts, and your company tax return. All these documents can be produced with support from an accountant, but this is yet another cost to factor in, as is the cost of any other professional services you may need to use.<\/p>\n

Mortgage rates<\/strong><\/span><\/p>\n

Mortgage interest rates and fees are normally higher for a company loan than equivalent mortgages on properties held in a personal name. This is because the process is a little more complex and you have far less choice when it comes to finding a lender.<\/p>\n

Therefore, whilst you can offset your mortgage interest against profits, the actual amount of mortgage interest you pay compared to owning a holiday let in your personal name is an important consideration.<\/p>\n

The responsibilities of running a company<\/strong><\/span><\/p>\n

There are many legal and regulatory aspects to comply with when you choose to set up as a limited company. There\u2019s a requirement to maintain and submit annual accounts, confirmation statements, corporation tax computations and corporation tax returns. The administrative work can be time-consuming, complex and somewhat a burden.<\/p>\n

No capital gains <\/strong>allowance<\/strong><\/span><\/p>\n

While individuals selling their holiday let can claim an annual exemption amount of \u00a33,000 against chargeable capital gains, there is no capital gains allowance for those operating their holiday let business as a limited company.<\/p>\n

No personal allowance<\/p>\n

Individuals benefit from a personal allowance of \u00a312,570 (if taxable income is under \u00a3125,140), which means that income up to this amount is tax-free. This does not apply to limited companies.<\/p>\n

Double taxation of income<\/strong><\/span><\/p>\n

If you take profit out of the limited company by paying yourself a salary or a dividend, you pay income tax on the amount and the company pays corporation tax on the profits. This situation is known as double taxation.<\/p>\n

How to buy a holiday let directly through a limited company<\/strong><\/span><\/h2>\n

Buying a holiday let directly through a limited company in the UK involves some similar steps to the transfer method, but also some new considerations:<\/p>\n

Set up your limited company <\/strong><\/span><\/p>\n