There are various factors to consider when deciding to structure your holiday let ownership through a limited company.

It is possible to Offset Your Mortgage Interest?

The decision to purchase residential property through a limited company was popularized by buy-to-let landlords due to changes in mortgage interest deductibility. The changes stated that landlords could no longer fully deduct their mortgage interest from their buy-to-let profits. Landlords are now only eligible for a basic rate tax credit instead of the previous full mortgage interest offset.

One solution to this issue was to buy a buy-to-let property through a limited company, as they are not subject to the same regulations. Within a limited company, mortgage interest can be offset against profits.

Historically, holiday lets were subject to different regulations compared to buy-to-lets. According to HMRC’s guidelines, a property classified as a furnished holiday let is viewed as a business by HMRC. There is no restriction on the amount of mortgage interest that can be deducted from your profits.

As of April 2025 ,there will be changes affecting holiday-let investors, leading many to opt for the limited company structure and mortgage route to offset mortgageA mortgage where the borrower's savings are offset against t... interest against profits and save on taxes.

The article is updated as of 20 July 2024

There is Flexibility in Choosing When to Declare a Profit

When purchasing a holiday rental property through a limited company, any profits generated will remain within the company until they are withdrawn, giving you the flexibility to decide when to do so.

Contractors often choose to retain profits within their limited companies, particularly during periods of lower income, in order to take advantage of lower tax rates. As a director of a limited company, you have the option to pay yourself dividends, which can help manage your tax obligations.

When operating a holiday let in your personal name, you are required to report all profits from that year on your tax return.

Many individuals choose to manage their tax responsibilities by operating their holiday rental through a limited company, allowing them to potentially reduce their tax liabilities and avoid declaring all profits.

You are Developing a Holiday Rental Business

You may be considering establishing a limited company to manage multiple holiday lets as part of your ambition to own a large number of them. There are financial benefits to creating a portfolio of properties within a single limited company.

The concept is to purchase the initial property and then use the profits to acquire the second one. By using the profits from those two properties, you can invest in the third one, and continue this process. Essentially, you can use your returns to contribute to the mortgage deposit for your next property.

Strategies for Managing Inheritance Tax

Choosing to purchase through a limited company may be a strategic option for future inheritance tax planning. This topic requires specialized knowledge and expertise, so we recommend consulting with a professional.

Consider the Pros and Cons of Using a Limited Company Before Making a Decision

1. Utilizing the Services of Companies House.

Running a company involves managing costs related to incorporation and administration. After establishing a limited company, it is important to ensure compliance with all relevant rules and regulations. As part of your obligations, you are required to submit an annual confirmation statement, accounts, and a corporation tax return. Typically, individuals hire an accountant for these duties, which is a common expense when operating a limited company.

2. Interest Rate

In cases where a limited company is the mortgage applicant and purchaser of a property, holiday let mortgages are generally more costly. This is due to the more complex nature of the process and the fact that lenders may view lending to limited companies as riskier than lending to individuals.

3. Ownership Cannot be Layered

Many individuals are opting for self-employment, leading to an increase in the number of limited companies.

Imagine you are the owner of a limited company. It may be recommended in this situation to establish an SPV that is owned by your limited company.

This is known as ownership layering, where a limited company owns shares in an SPV, either partially or completely. The issue arises from the fact that most holiday let mortgage providers do not permit it.

When a limited company holds shares in the SPV, a group company structure is formed, which may not be preferred by many mortgage providers.

Ownership of the Special Purpose Vehicle (SPV) is typically required to be in the individual’s name, as mentioned previously: mirrored, personal ownership. Some mortgage lenders are willing to handle complicated applications that involve quirks like layering, but it’s important to be prepared for higher rates.

Steps for Transferring Your Mortgage Deposit Into the SPV

When considering where to put your holiday let mortgage deposit money in your SPV, there are typically only three approved methods to choose from.

1. Director’s Loan

Director’s loans are flexible and widely used. The directors of the SPV will loan their personal savings to the company.

After creating a new SPV with the correct SIC code, transfer the deposit money from your bank account into the SPV. The deposit is securely placed inside and is ready for use.

2. Shareholder’s Funds

Choosing this option is uncommon, but it is still possible. As a shareholder, you invest a sum of money in the business in exchange for shares.

After setting up your limited company and deciding to purchase a property through it, there are important considerations to keep in mind. One key aspect to think about is how using a limited company can impact your inheritance tax planning. Consulting with a professional in this area is highly recommended due to the complexity of the topic.

Managing a limited company involves costs related to incorporation and administration, such as submitting annual statements and tax returns. Additionally, holiday let mortgages for limited companies may come with higher interest rates compared to individual applicants.

It is important to note that ownership layering, where a limited company owns shares in an SPV, may not be permitted by most mortgage providers. This means that the ownership of the SPV must typically be in the individual’s name.

When transferring your mortgage deposit into the SPV, options include using a director’s loan or shareholder’s funds. It is crucial to seek professional advice when it comes to managing your limited company and considering the implications for inheritance tax planning.

3. Retained Profits

If you have funds already in your SPV, they are classified as retained profits and can be utilized for your mortgage deposit.

Consider the scenario where you own a buy-to-let property in your current limited company, which has been consistently profitable over the years. As a result, there is already £50,000, for instance, held within the SPV from retained profits – this money can be used for your mortgage deposit.

If the amount of money is insufficient, you have the option to either increase the director’s loan or issue more shares.

Can you loan the money?

Some people want to save up more money for their mortgage deposit. One common question: Can I borrow money from my trading company?

Mortgage lenders have different criteria for lending to limited companies. Some people prefer complex situations, while others only want simple solutions.

Some lenders only accept mortgage applications from mirrored limited companies with no layering of personal names. Some lenders may accept layered financing or forgiven inter-company loans. These cases are more complex, so your mortgage rates may not be as favourable.

If you find yourself in a situation where you’re considering structuring your holiday let via a limited company, please contact us. We can assign you to one of our experienced brokers to help you throughout the process.