The Director’s Guide to Tax‑Efficient Funding with Intercompany Loans
For UK director-shareholders, holding a holiday let inside a Special Purpose Vehicle (SPV) limited company can be an efficient way to invest, manage risk, and optimise tax. A powerful, often overlooked tactic is funding the SPV with an intercompany loan from your existing trading company-so you avoid extracting a dividend and the personal tax that comes with it.
This article explains the benefits, lender expectations, and the exact steps to set this up.
Key takeaways
- SPV ownership keeps your property activity separate from your trading business and supports tax‑efficient profit retention.
- An intercompany loan lets your trading company fund the SPV’s deposit without triggering a personal dividend or income tax.
- Most specialist lenders prefer clean SPV structures, correct property SIC codes, and personal guarantees from directors.
- Holiday let tax rules change from April 2025: personal ownership loses key benefits, while companies continue to treat mortgage interest as a business expense.
- Get independent tax and legal advice-especially on SIC codes, loan documentation, and profit extraction.
What is an SPV for holiday lets?
An SPV is a limited company set up solely to own and manage property investments. For lender‑friendly setup, register under property‑specific Standard Industrial Classification (SIC) codes (commonly 68100, 68201, 68209, 68320) and avoid trading activities unrelated to property. Keep banking, bookkeeping and contracts within the SPV to ring‑fence risk and make underwriting straightforward.
Why an SPV beats personal ownership after April 2025
The Furnished Holiday Let (FHL) regime ends in April 2025. Individuals will lose full mortgage‑interest deductibility and other benefits, whereas companies continue to treat finance costs as business expenses within corporation‑tax rules. If you plan to build a holiday‑let portfolio, an SPV helps you retain profits for reinvestment and maintain cleaner separation of assets.
Intercompany loans: how directors fund the SPV without dividends
Instead of taking a dividend, your trading company can lend funds directly to the SPV. This avoids personal tax on extraction, keeps capital inside your corporate group, and provides flexible repayment terms. Document the loan formally (amount, interest rate if any, repayment triggers), record transfers in bank statements, and ensure the director/shareholder structure matches across both companies.
- No dividend = no personal tax on the funding step.
- Loan remains on the SPV’s balance sheet; repayments are company‑to‑company.
- Optional interest should be commercially reasonable; take transfer‑pricing advice if amounts are material.
- Maintain clear audit trail (board minutes, loan agreement, statements).
What lenders look for on SPV holiday‑let mortgages
Specialist lenders typically prefer clean SPVs with property SIC codes and will ask directors for personal guarantees. They may also require the Direct Debit to be taken from the SPV’s bank account and evidence that the deposit is coming from acceptable sources-many now accept intercompany or director‑loan deposits when properly documented.
- Correct property SIC codes (e.g., 68100, 68201, 68209, 68320).
- Simple structure (no layered companies).
- Personal guarantees from all directors.
- Source‑of‑deposit evidence: intercompany or director loans often acceptable when matched directors/shareholders and documentation is provided.
- Rental‑income stress testing and experienced underwriting for holiday‑let income patterns.
Example scenario (illustrative)
A director has £120,000 of retained profits in a trading company. They set up an SPV, agree a £100,000 intercompany loan to fund the deposit on a £400,000 holiday let, and keep £20,000 for furnishings and contingencies. The SPV applies for a 75% LTV holiday‑let mortgage. The lender accepts the intercompany deposit after reviewing the loan agreement, bank statements and matching directors/shareholders. The SPV services the mortgage from rental income and repays the intercompany loan over time.
FAQs
Can I charge interest on the intercompany loan?
Yes-set a commercial rate and document it. Interest income will be taxable
in the trading company; the SPV may deduct interest as a business expense.
Do I need experience as a landlord?
Some lenders prefer prior experience for holiday lets; others will lend to
first‑time investors if affordability and the case stacks up.
Will lenders accept layered corporate structures?
Most lenders do not accept layered structures-keep the SPV simple with
direct ownership by the individual directors/shareholders.
Can the SPV buy multiple properties?
Yes-many lenders support portfolio growth inside the SPV, subject to
affordability and exposure limits.
What happens after April 2025?
Individuals lose several FHL perks; SPVs continue to treat finance costs and
operations within corporation‑tax rules.
Important disclaimer: get professional tax and legal advice
Before incorporating or funding an SPV, obtain independent tax advice and legal advice-particularly on SIC codes, intercompany loan terms, transfer‑pricing, and personal‑guarantee implications. Lender criteria vary; a broker familiar with SPV holiday‑let mortgages can help match your case to the right provider.