Owning a Holiday Let Through a Limited Company: The Smart Investor’s Guide
Following the UK Government’s March 2024 announcement to scrap the Furnished Holiday Let (FHL) tax advantages, a growing number of holiday let investors are exploring a new route: buying or transferring their property into a limited company structure.
In this guide, we’ll walk you through the steps, highlight the potential perks, and flag up the challenges involved in using a limited company to hold your holiday property.
What Is a Limited Company?
A limited company is a separate legal entity from its owners, who are shareholders or guarantors. This structure provides a clear separation between personal and business assets, offering an extra layer of financial protection.
Why Use a Limited Company for Your Holiday Let?
1. Mortgage Interest Relief
From April 2025, individual owners will no longer be able to offset mortgage interest against income from their holiday lets. Limited companies, however, retain this benefit—potentially saving you thousands and lowering your corporation tax bill.
2. Favourable Tax Rates
Limited companies currently pay 19% corporation tax on profits up to £50,000, compared to individuals who may pay income tax between 20% and 45%. That’s a big win for profitability.
3. Control When You Pay Tax
With a limited company, you choose when to draw income using dividends. This flexibility allows for better tax planning, unlike personal ownership, where profits must be declared in the year they’re earned.
4. VAT Benefits
If you own multiple holiday lets, each one can be held by a separate company. Each company then enjoys its own £85,000 VAT registration threshold, potentially keeping you under the limit and avoiding VAT registration altogether.
5. Business Rates Relief
Owning properties through separate companies can also help you benefit from small business rate relief, with each company able to apply for the £12,000 threshold.
6. Lower Stamp Duty on Exit
If you sell your property as part of a company sale, the buyer may only pay 0.5% stamp duty (on shares) instead of the higher property-based rates. This could make your property more attractive to investors and help you negotiate a better price.
7. Inheritance Planning
Owning the property through a company offers more flexible inheritance planning. You can transfer shares in the business instead of trying to gift or sell the property itself—streamlining the process and reducing complications.
8. Reinvesting Profits
Reinvesting profits into new property purchases is simpler with a company. This strategy works especially well for higher-rate taxpayers looking to grow a holiday let portfolio.
9. Limited Liability
Your personal assets remain protected, as the company is liable for its own debts and obligations. This limits your exposure if anything goes wrong.
What Are the Drawbacks?
1. Costs and Admin
Running a limited company isn’t free. You’ll need to set it up, maintain company records, file annual accounts and tax returns, and possibly hire accountants or solicitors to stay compliant.
2. Higher Mortgage Costs
Mortgages for limited companies typically come with higher interest rates and fees. The range of lenders is more limited, and you may need to offer a personal guarantee.
3. Administrative Burden
You’ll be legally required to handle multiple filings and reports—confirmation statements, corporation tax returns, statutory accounts, and more. Managing this can be time-consuming and may require professional help.
4. No Capital Gains Allowance
Limited companies don’t benefit from the £3,000 annual capital gains allowance that individuals receive when selling a property.
5. No Personal Allowance
Individuals enjoy a £12,570 tax-free personal income allowance. Companies do not get this benefit, which may affect your tax efficiency depending on your circumstances.
6. Double Taxation
If you draw profits as salary or dividends, both you and the company pay tax—corporation tax on profits and personal tax on the withdrawn income. This is often referred to as double taxation.
Buying a Holiday Let Directly Through a Limited Company
- Set Up Your Company
- Register the company via Companies House.
- Make sure your articles of association include property ownership and letting.
- Open a business bank account.
- Secure Finance
- Calculate your total budget, including the property price, legal fees, and taxes.
- Approach lenders who offer holiday let mortgages to companies.
- Be ready to provide a personal guarantee.
- Hire the Right Experts
- Get a solicitor experienced in commercial property.
- Work with an accountant for financial and tax planning.
Transferring an Existing Holiday Let to a Limited Company
- Set Up Your Limited Company
- Register the company and open a business bank account.
- Ensure its legal documents support property letting.
- Sell the Property to Your Company
- This is a legal sale and involves conveyancing.
- You may trigger Capital Gains Tax and SDLT.
- Mortgage Transfer
- Notify your current lender.
- You may need to settle the existing loan and secure a new commercial mortgage.
- Update HMRC and Other Records
- Inform HMRC about the new ownership.
- Update insurance, licenses, and utility accounts.
Final Thoughts
Owning a holiday let via a limited company can offer compelling tax and operational advantages—especially for higher-rate taxpayers or investors aiming to build a property portfolio. But for those only managing a single holiday home, sticking with personal ownership may be more cost-effective and straightforward.
As always, seek advice from legal and tax professionals before making any moves. Every investor’s situation is different, and expert guidance ensures your decisions align with your financial goals.
Disclaimer: This article is for informational purposes only and does not constitute financial or legal advice. Always consult qualified professionals before making property or business decisions.