As the holiday-let market evolves, many property owners are exploring whether transferring a personally owned holiday let into a limited company could offer long-term tax or operational benefits. While incorporation can be attractive in some circumstances, the process is often far more complex-and significantly more expensive-than many people expect.
Importantly, transferring a property from personal ownership into a company is legally treated as a sale, even if you own both. This classification triggers a number of tax charges, administrative requirements, and legal considerations that must be carefully evaluated.
This article provides a high-level overview of the implications. It is not tax or legal advice, and anyone considering incorporation should seek tailored professional guidance.
Why the Transfer Is Treated as a Sale
Although you already own the property, HMRC views the limited company as a separate legal entity. As a result, transferring the holiday let into the company is treated exactly like selling it on the open market.
This means:
- You, as the individual, may face taxes arising from the “sale.”
- The company may face taxes associated with the “purchase.”
Even where no money changes hands, the transaction must still be assessed using full open market value, which becomes the basis for calculating tax liabilities.
Key Financial Implications of Incorporation
1. Stamp Duty Land Tax (SDLT) – England
When a company acquires a residential property, it must pay SDLT on the full market value of the property at the point of transfer-regardless of the actual consideration paid.
As of October 2024, company purchases of residential property attract a 5% surcharge on top of standard SDLT rates.
Equivalent taxes apply across the UK:
- Wales: Land Transaction Tax (LTT)
- Scotland: Land and Buildings Transaction Tax (LBTT)
Each follows the same principle: even where the owner effectively transfers the property to themselves via a company, the valuation rules do not change.
2. Capital Gains Tax (CGT)- Liability for the Individual
From your perspective as the seller, the transfer may trigger a Capital Gains Tax charge on the increase in value since you originally bought the property.
An accountant will typically need to calculate:
- The original purchase price
- The property’s full current market value
- Any allowable reliefs or deductible costs
CGT can be one of the most substantial costs associated with incorporation, especially for long-held or significantly appreciated properties.
What Mortgage Lenders Typically Require
If your limited company intends to finance the purchase through a holiday let mortgage, lenders will generally require a detailed accountant’s advice letter before considering the application.
This letter usually needs to set out:
Key Financial Details
- The confirmed market-value purchase price
- SDLT, LTT, or LBTT payable
- Any CGT liability arising from the transfer
Funding & Accounting Structure
- How the deposit will be funded (commonly via a director’s loan, subject to accountant confirmation)
- How the transaction will be recorded in the company’s accounts
This ensures both the lender and HMRC can verify the legitimacy and structure of the transfer.
Does the Property Have to Be Sold at Full Market Value?
Yes. Both lenders and HMRC require the transfer to reflect full open market value. This applies even if:
- No money is exchanged
- You will remain the property’s ultimate controller
- You intend to reinvest or roll over value into the company
Attempts to understate the value can lead to tax penalties or invalidate lending arrangements.
Is Incorporating a Holiday Let the Right Decision?
While incorporation can offer potential long-term tax benefits and may suit owners operating at scale, it is not right for everyone. For many, the immediate tax costs-combined with professional fees, lender requirements, and administrative burdens-outweigh the potential advantages.
Additionally, it’s important to recognise that tax law can change. For example, the UK government could, at any time, amend rules regarding company-held property, including the availability of mortgage interest relief for Special Purpose Vehicles (SPVs). Future changes could impact the financial outcomes of incorporation.
Because of these risks and complexities, you should always consult:
- A qualified accountant
- A tax specialist
- A solicitor (where appropriate)
They can assess your financial position, property portfolio, future plans, and the specific tax consequences for your situation.
Related reading: Using an SPV Ltd Company for Your Holiday Let
Final Thoughts
Incorporating a personally owned holiday let is a major financial and legal step-not a simple administrative exercise. While it may provide benefits for certain owners, the costs, taxes, and long-term implications must be weighed carefully with the support of professional advisers.