Buying a holiday let as a limited company

Contents 

1. Understanding Limited Companies
2. Advantages of Buying a Holiday Let Through a Limited Company
3. Disadvantages of Buying a Holiday Let Through a Limited Company
4. Financial Considerations and Loan Accessibility
5. Legal and Tax Implications
6. Start Your Holiday Letting Journey with Silverlake

Understanding Limited Companies 

What is a limited company? 

A limited company is considered a legally separate entity (business) that protects assets and separates personal finances from business ones. These businesses, made up of shareholders or guarantors, generate profits by investing any money made back into the company where it will stay and build further with investment.   

What is a furnished holiday let? 

A furnished holiday let is a holiday property that qualifies as fully furnished accommodation and has full amenities that are actively marketed for commercial gain. However, a furnished holiday let (FHL) as a business has certain criteria to meet as an investment property, hence it must be both actively marketed to draw profit and simultaneously be in fully furnished condition. If you are committed and comfortable meeting the let criteria, the future investment potential can be highly beneficial long-term as well as financially rewarding in the short term.  

If you let properties that qualify as FHLs, you can claim Capital Gains Tax relief along with plant and machinery capital allowances. You can benefit from all profits made that can be counted towards earnings for pension purposes. 

Investment 

If you invest with a limited company, instead of buying a holiday let individually, you are legally protected and, in the event of unprecedented bankruptcy, your personal assets are protected. After tax and a steady flow of passive income, the profits are strategically distributed and split, with shares going to the limited company and the homeowner, for collateral protection. 

There is a higher financial risk of operating as an individual with a holiday let. This is due to the risk of your personal assets being unprotected, whose name the holiday let should be under and most importantly the mortgage rates, tax rates and VAT. 

Advantages of Buying a Holiday Let Through a Limited Company 

Tax Benefits 

As a sole individual buying a holiday let, you would need to declare year-on-year profits and pay a higher income tax rate of up to 20 to 40%, but with a limited company, you usually only pay 19% corporation tax on any profits made (based on a taxable profit of £50,000 or less*). Subsequently, any profits would be split and then received through wages via the company. This means, that when buying with a limited company, you pay less and can reap more favourable profits on your holiday let due to a massive reduction in tax. 

Mortgage Rate Reliefs 

Whilst there is a specific holiday let mortgage criteria, mortgage interest relief with a limited company is typically more favourable in the long term. Holiday home mortgages are more expensive than residential mortgages, but this extra cost is not as daunting for holiday homeowners due to the impressive savings already made on income tax. 

Personal and Company Finances 

When you buy a holiday let with a limited company, you can rest assured your personal assets are protected. This is because your business ventures will legally be treated as entirely separate activities from your personal assets, such as your home and finances. 

VAT 

At Silverlake, a purpose-built holiday home community in Dorset, all freehold plots are VAT zero-rated, meaning there are no additional costs to pay on a plot of land at the Estate. 

Disadvantages of Buying a Holiday Let Through a Limited Company 

In some cases, it may be better to buy the holiday let as an individual instead. 

Financial Circumstances 

Depending on your financial circumstances, it may be more suitable to buy a holiday let in your name if there is no benefit to buying through a limited company. If this is your first holiday property, it is always best to ask for financial advice to see what options are best suited to your circumstances and sustainable for your budget and experience level.  

Higher Stamp Duty (SDLT) Rates 

There may be a higher SDLT to pay (such as an additional 5% of your plot or holiday home purchase price), as well as higher set-up costs and a VAT reduction from booking revenue when running the holiday let as a limited company. 

However, Silverlake offers holiday home plots in Dorset that are self-build, meaning they are entirely exempt from the 5% stamp duty surcharge on second homes, resulting in more smart savings on stamp duty. 

Financial Considerations and Loan Accessibility 

In recent years, the mortgage market for limited companies looking to invest in holiday lets has been bountiful. However, holiday let investment has differed in terms of tax and mortgage rates for limited companies and those who individually own property. 

You can get a holiday let mortgage if you currently have a residential one as the holiday let mortgage is specifically intended for holiday use.  

Here are the comparisons on mortgage interest rates and the maximum loan you can access for a holiday let*: 

*Interest rates and maximum loans are accurate as of November 2023. 

With a mortgage on your FHL, you will have to pay interest, but you will be able to offset interest against your overall profits earned. 

However, regarding the maximum loan intake for each mortgage type, financial records and a higher deposit may be required to be eligible for each loan depending on financial factors. 

Legal and Tax Implications 

Legal Responsibilities 

Setting up and running a limited company comes with a list of legal responsibilities and rules that are vital to follow, such as: 

• •  Following the Limited Company rules
• •  Paying Corporation Tax
• •  Keeping Records and Company Tax Return accounts (or hiring an accountant to do so)

Stamp Duty Land Tax (SDLT) implications 

Stamp Duty Land Tax charges 15% on residential properties bought by corporate bodies that are valued at more than £500,000. If you use your holiday home as an active holiday let, you are entitled to business relief from the 15% surcharge on stamp duty for corporate structures, as a property rental business. However, you must meet the conditions for a corporate structure to receive the relief, otherwise the higher rate charge is still present.  

Tax Considerations 

Tax considerations, providing the property is commercially let, involve the intention to make a profit and cover the necessary costs that come with it. In the UK, all FHLs are taxed and come with additional VAT regulations that are generally required to be followed unless you are exempt under certain circumstances. 

VAT obligations for high-turnover furnished holiday lets (FHL) involve registering for VAT if your turnover exceeds or is expected to exceed £85,000 for the rolling year. This means that after this threshold has been crossed, the income taken would be subject to a 20% standard VAT rate. 

Start Your Holiday Letting Journey with Silverlake, Dorset 

Whether you are investment-ready or still thinking through your options, the decision to begin your investment journey is likely to be life-enhancing. When you buy with a limited company, our dedicated property team can help you at every step of the way, so you are comfortable with the criteria and responsibilities required as part of your holiday home investment.  

Silverlake properties can offer you huge tax benefits and savings at a highly trusted lakeside estate in the heart of Dorset. Eco-friendly holiday lets provide the perfect habitat for holidaymakers to explore the beauty of the Dorset countryside.  

Imagine luxury furnished holiday lets with stunning lakeside views, premium facilities such as an on-site spa, and a thriving sustainable community in proximity to Dorset's Jurassic Coast. At Silverlake, the onsite holiday rental company, Habitat Escapes can assist in marketing and managing your property so holiday letting and holiday property bookings can be made simple. With more bookings, more profit can be generated from your Dorset holiday let investment with ease. 

Book a call or contact our property team for any queries or more information regarding Silverlake holiday lets for sale and help to start your holiday homeowner journey today. 

Holiday lets for sale at Silverlake

The information contained in this article is accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time. Nothing in this article constitutes financial advice. Please always consult your accountant or solicitor for all financial, taxation or legal matters 

* Figures correct at the time of publishing in November 2023.