Holiday lets offer the chance to earn much higher rental yields than traditional buy-to-lets, as well as potentially offering a place for you and your family to get away from it all for a week or two.

That’s great, but it can be even better when you purchase your holiday let via an SPV. Read on to discover the benefits; and find out what you should know before you buy.

Why buy a holiday let through an SPV?

When purchasing a holiday let via an SPV limited company, all of the usual benefits of SPV property investment apply:

• Tax advantages for higher-rate taxpayers: just 19% corporation tax on profits versus up to 45% income tax.
• Retained earnings: profits can be kept within the company to prevent further tax, and extracted when you need them or reinvested into other opportunities.
• Mortgage interest tax relief: you’re free to subtract 100% of your mortgage interest costs from your taxable income.
• Easy succession planning: pass on your assets with lower or zero capital gains tax, inheritance tax and stamp duty.

You can get 100% mortgage interest tax relief with a holiday let property in your own name, but you would need to meet the stringent conditions for a ‘furnished holiday let’ each year (which include location, commercial intent, sufficient furniture, availability to rent out, occupancy and a limit on the number of days for all ‘long stays’ over 31 days each).

And by storing holiday lets in an SPV, the owner of the SPV can then sell on an entire portfolio by simply selling the shares in the SPV; minimising the stamp duty on the transaction (since stamp duty on shares is charged at just 0.5%) or in some cases eliminating it altogether.

This means you might be able to acquire an entire holiday accommodation portfolio for a lower price tag; or, if you want to sell on the portfolio you’ve built, you might be able to build that stamp duty saving into your sale price and profit.

Multiple limited companies: yes or no?

You can also use different SPV limited companies to effectively ringfence different holiday lets from each other, and theoretically to pay less VAT and business rates by taking advantage of each SPV’s own tax-free allowances. 

However, we’d exercise caution with the latter, as HMRC won’t be happy with you if they think you’re trying to skirt around their tax rules. It’s best to talk it through with a tax expert to make sure you’re not setting yourself up for a very expensive tax bill.

There’s another issue with setting up multiple limited companies, too. If you want to unlock the other benefits of furnished holiday lets (such as capital allowances) but you haven’t met the minimum rented days requirement, you can only use an averaging election across properties held in the same limited company structure.

This means, if a holiday property held in one SPV has missed the mark, you can’t use properties held in other SPVs in your averaging calculations.

What to do before buying a holiday let through an SPV

Interested in using an SPV structure for your holiday accommodation investments? Here’s what you should do next…

Speak to the experts

We really can’t stress this enough. Both SPVs and holiday lets are complicated beasts, and you don’t want to end up in an awkward legal and/or financial position because you made a simple mistake.

We recommend speaking to tax and legal specialists before you even start looking for a holiday property. They’ll be able to advise you on whether your investment plans are viable, and can guide you in the process of setting up an SPV.

Set up your SPV before purchasing

If you want to enjoy the benefits of buying a holiday let through a limited company, it’s essential to establish the limited company with Companies House first.

Thankfully, setting up an SPV for holiday lets is no different to setting up an SPV for any other kind of investment property. You can even register under the exact same SIC codes (namely 68100, 68209 and/or 68320).

Find the right property

No matter whether you’re buying holiday accommodation through a limited company or in your own personal name, the most important thing is finding a property that’s going to be profitable for you.

That means doing the usual due diligence and market research, as you would when buying any other kind of property:

• Which locations and property types are going to give you the best performance?
• What types of holidaymakers are you looking to attract?
• What will you need to do to keep it occupied throughout the holiday season (or perhaps all year round)?
• Does your property have all the necessary features, facilities and amenities? How much will renovations cost you, if you need them? How much will it cost to keep the property in good condition?
• Are there any restrictions which might prevent you renting out the property to holidaymakers?

Plan your finances

Getting a holiday let mortgage is entirely dependent on your ability to generate enough rental income from holidaymakers to cover the mortgage.

Unlike typical buy-to-lets which are occupied all year round (and therefore generating income all year round), most holiday lets are likely going to attract visitors during the summer (or other peak seasons) and then remain mostly unoccupied during off-peak times.

Of course, the flipside is that holiday property rent can be charged at much higher rates; but still, make sure you’re making enough to cover the repayments.

(If you purchase in the winter, for instance, it’ll probably be a while until that property will start bringing in holidaymakers’ money. What’s your plan for paying back the mortgage in the meantime?)

Don’t forget the deposit, stamp duty and other costs too – and remember, you’ll need a dedicated holiday let mortgage product as most buy-to-let and residential mortgage products aren’t compatible.

Looking to secure your first holiday let mortgage via an SPV limited company? Our highly experienced mortgage broker specialists are here to help you get the very best deals from lenders.

Get in touch online and begin your holiday let investment journey today