Should I incorporate my furnished holiday let business?

Furnished holiday lets (FHLs) can provide a valuable source of income and can help diversify existing business activities. With the COVID-19 pandemic resulting in a substantial increase in “staycations”, FHL and short term let businesses should revaluate their business structure to ensure they are positioned as efficiently as possible to capitalise on the growing market.

FHLs commonly operate via a sole trade or partnership which leaves their profits exposed to Income Tax rates, however due to lower Corporation Tax rates and future succession planning many operators are looking at incorporating their business. The decision to incorporate should not be taken lightly as it can be a complex process with varying tax implications. Professional advice should be sought to ensure all aspects are adequately dealt with and no adverse consequences arise.

For owners who do not wish to withdraw their profits for personal use, it can be more tax efficient to retain profits within a corporate because of the lower corporation tax rate. This approach is most commonly adopted for FHLs that have purchased the property with bank debt and/or the ownership is intended to be long term to provide retirement income.

There are various Capital Gains Tax (CGT), Inheritance Tax (IHT) and Land and Buildings Transaction Tax (LBTT) planning opportunities around corporate ownership structures and these can be fully explored, and any benefits quantified prior to incorporating an existing FHL business.

Company ownership could be more suitable for larger (in financial terms) investment activity in FHLs, particularly where there is substantial bank debt. However, company ownership increases costs and there are a number of tax downsides where personal occupation of property is involved so careful consideration, planning and advice is required.

For more information or to discuss your circumstances, get in touch with our EQ Leisure team by calling one of our offices or emailing leisure@eqaccountants.co.uk.