Using a property company for furnished holiday lets
Furnished holiday lets (FHLs) can be a lucrative investment, but the tax position is surprisingly complex. Many property owners wonder whether operating through a limited company offers genuine advantages—or simply adds unnecessary complication. The answer depends on your specific circumstances, but there are compelling reasons why some investors do choose the company route. Let’s explore the key considerations that should inform your decision.
Understanding the FHL tax position
First, it’s worth remembering that furnished holiday lets occupy a unique space in UK tax law. They’re treated more favourably than standard buy-to-let properties, but less favourably than trading businesses. HMRC considers an FHL to be a property that’s available for commercial holiday lettings for at least 210 days per year, actually let for at least 105 days, and not let to the same tenant for more than 31 consecutive days.
If these conditions are met, you can claim capital allowances on furnishings and fittings—a significant tax advantage unavailable for standard rental properties. You can also offset losses against other income, rather than carrying them forward indefinitely. For many sole traders and partnerships, this already provides meaningful tax relief.
The company structure advantage
Operating your FHL through a limited company changes the equation. Company corporation tax is charged at 19% on profits (the standard rate for 2024/25), whereas individual income tax rates range from 20% to 45% depending on your other income. For higher earners, the mathematical benefit can be substantial.
More importantly, a company structure separates your personal finances from the property business. If something goes wrong—a serious accident on the premises, for instance—personal liability is limited. This is a significant risk management benefit that many professional landlords take seriously.
Additionally, any profits retained within the company can fund renovations or acquisitions without triggering immediate personal tax. This can accelerate business growth, though it does mean paying corporation tax upfront rather than deferring personal income tax.
Practical disadvantages to weigh
However, the company route isn’t cost-free. You’ll need to file a corporation tax return annually with Companies House, maintain proper company accounting records, and satisfy statutory filing requirements. These create genuine administrative burden and accountancy costs—typically several hundred pounds per year for a small property company.
Dividend extraction, the main way of getting money out of the company efficiently, is tax-inefficient if profits fall below £1,000 or if you’re a basic rate taxpayer. Dividends are only tax-free up to £500 in 2024/25, and higher rate taxpayers face additional tax. You’ll also need to consider employer’s National Insurance if you employ staff.
Importantly, mortgage lenders treat company-owned properties differently. Interest rates are often higher, and some lenders won’t lend to companies at all. If you’re considering purchasing the property or refinancing, this is a crucial issue to investigate upfront.
When a company structure makes sense
The company structure typically works best if you:
- Operate multiple FHLs with combined profits exceeding £10,000–£15,000 annually
- Are a higher or additional rate taxpayer (40% or 45%)
- Plan to reinvest profits within the business
- Have significant personal liability concerns
- Intend to build a substantial portfolio over time
For smaller operations or basic rate taxpayers, the administrative costs and complexity often outweigh the tax savings. Conversely, for serious property entrepreneurs, a company can be the foundation of a tax-efficient investment strategy.
Getting the timing right
If you do decide a company structure makes sense, timing matters. Incorporating an existing sole trader FHL triggers tax implications, and you’ll need to carefully manage the transition to avoid unexpected bills. Starting fresh with a company is simpler, but converting later is certainly possible with proper planning.
Conclusion
There’s no one-size-fits-all answer to the FHL company question. The decision hinges on your personal tax position, the scale of your operation, your risk appetite, and your long-term ambitions. What works brilliantly for one investor might be unnecessarily complex for another.
What’s essential is that you don’t simply default to one approach without thinking it through. Take professional advice at the outset, and revisit the question if your circumstances change—a structure that made sense five years ago might not be optimal today.
For tailored advice, contact Severn Accounting — we’re here to help.