Buying a Holiday Let in Personal Names and Leasing It to Your Company: Good Idea?

The question we keep being asked

A growing number of holiday let clients come to us with a suggestion from their accountant: buy the property in your personal names, secure the lower personal-name mortgage rate, then grant a lease from yourselves to your own limited company so the trading income runs through the business at corporation-tax rates.

On the face of it, it looks like the best of both worlds, a cheaper mortgage and more favourable tax relief. In practice, it creates a problem that usually costs more than it saves.

Why personal-name rates are lower

It is true that mortgages held in personal names are generally priced below limited company (SPV) equivalents.

Lenders treat company lending as higher risk and price it accordingly, so the headline rate on a personal-name product is often meaningfully lower. That difference is real, and it is what makes the arrangement tempting. The saving, though, has to be weighed against what you give up to access it.

The structure the accountant is describing

The mechanism relies on two separate transactions. First, the property is bought and mortgaged in personal names. Second, the owners grant a lease of that property to a limited company they control, and the company then operates the holiday let and receives the income.

The intended result is that profits are taxed at the corporate rate, with the associated relief, rather than as personal income. The tax logic can stand up on its own.

The difficulty is that it ignores what the mortgage contract says.

The problem: the lease breaches the mortgage

Almost every personal-name mortgage prohibits the borrower from granting a lease, or otherwise parting with possession of the property, without the lender’s prior written consent.

Granting a lease to your own company without that consent is a direct breach of the mortgage conditions, and can amount to an event of default. This is not a technicality that lenders overlook, it sits at the centre of how they protect their security.

There is, to be candid, a very small corner of the market that will tolerate this kind of arrangement. But relying on it comes at a price: you become, in effect, a mortgage prisoner.

Why it makes you a mortgage prisoner

When the time comes to remortgage, the existence of the lease has to be disclosed.

A lease granted to a connected company changes the nature of the security, the property is no longer a straightforward owner-occupied or personally-let asset. Mainstream lenders will decline it.

Your pool of options collapses to the handful of lenders willing to accept the structure, and with no competition there is no pressure on rate. The modest saving you made at the outset is steadily eroded, and often overtaken, by the premium you pay to stay borrowed once you are locked in.

Two goals that collide

It helps to see where the advice is coming from.

An accountant is optimising for tax relief, which is entirely their job. A lender is assessing the quality and enforceability of its security, which is entirely theirs.

The personal-name-plus-company-lease structure works from the tax side and fails from the lending side, and because the mortgage is the larger and longer commitment, the lending side is where the damage lands.

Our recommendation

Our clear advice is to keep ownership and borrowing aligned. In practice that means choosing one route and committing to it:

• Buy and hold the property in personal names, and run the holiday let personally; or
• Buy through a limited company (SPV), and accept the company mortgage rate as the cost of the tax structure you want.

What we advise against is mixing the two, buying personally to get the cheaper rate while trading through a company via a lease the lender has not sanctioned. That is the combination that breaches lenders’ rules and, at the next remortgage opportunity, leaves you trapped.