Should our Limited Company own a holiday let property?

Q

We have a couple of questions for you, but think it’s best to provide some background, before we can get to them. My wife and I are looking to purchase a holiday let business, which consists of seven fully converted, self- contained stone Barns, set in 4 acres, plus a bit of woodland, on one freehold title. All seven barns that form the business are restricted to holiday let use only.

Our Solicitor has explained the implication and obligations of purchasing a property with a holiday let usage restriction and we are satisfied that it’s not an issue for us. The current owners have been quite open with us at this early stage, in terms of the accounts for this holiday let business. They show that the business is currently achieving a gross return of 14%, on a notional value of £1.7M. My wife and I run a successful bespoke wedding company. The company has been trading for over 25 years and we have built up £500K in retained profits.

Our Accountant has recommended that we purchase the holiday let business through a Limited Company, for lots of reasons, not least of which is that our Accountant has told us that rather than taking the deposit money from our existing company by way of dividend, thereby triggering a tax liability, we can make use a Director loan to fund the deposit without incurring any tax liability at all. Since we are looking at a sizeable deposit, this would be our preferred option.

He has told us that we could purchase the holiday let business through our existing trading business or set up a SPV, either way would be tax efficient. Having made some enquiries into a mortgage for this venture using comparison websites and coming up with nothing of any use, we thought that a holiday let mortgage specialist, like yourselves, might be able to help us.

Our questions are:

  • Do you think that purchasing this holiday let business through a Limited Company is the right way to hold it?
  • Is it possible to get a Limited company holiday let mortgage for a multiple unit property?

Alex M

A

Alex
Thank you for taking the time to give us full information, so that we can answer your question correctly. So, to the first question, purchasing this holiday let business through a Limited Company.

We would agree with your Accountant that, because you are intending to buy an existing VAT registered trading business that is linked to its use through a section 106 restriction, limited company would be the way to purchase this business. Because of the S106 restriction, the non-corporate mortgage rates would not be available to you in any case, so it is your only option. Plus, the added advantage of being able to fund the deposit by Directors’ loan without incurring any tax liability, clearly seals the matter in favour of the Limited Company ownership route.

It makes more financial sense to hold single, non multi-unit holiday let properties, which have full residential use in the planning, personally, at 60% LTV. The standard holiday let mortgage products are always far cheaper in terms of pay rate. This saving usually outweighs any current tax advantage.

Now to your second question, a Limited Company holiday let mortgage for a multi-unit property with a restriction. Yes, we should be able to assist here.

As you have already discovered, mortgages for this type of business are not available through comparison websites. This is because they are specialist and, in most situations, bespoke. They are underwritten and priced individually, based on a combination of factors, including the applicants’ personal financial position, the expected income from the property and its value. In this case, based on the stated return in the trading accounts, it is likely that the lender would agree a loan at 60% LTV, but would need to fully understand the trading accounts and your personal circumstances before that would be confirmed.

If you would like assistance, please call us and we would be delighted to take this case forward for you.