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Buy to Let and Holiday Let in same Ltd Company

Currently have residential buy to let company, should add holiday lets to same company or setup new

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Hello

I currently have a Ltd company with a number of buy to let properties.  I am now looking to venture into Furnished Holiday Lets.  Am I better to keep the types as separate businesses and suffer thd administrative costs or continue using the single company?

My main concern is the different approach to VAT for the two types of property.  If I hit the VAT threshold for my holiday lets how will this affect my exempt income from the residential properties.

thanks

Diccon

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By David Ex
24th Apr 2022 00:53

EMH-Properties wrote:

I currently have a Ltd company with a number of buy to let properties.

But no accountant? No money to pay an accountant?

Who advised you to put your buy to let properties in a company?

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By DKB-Sheffield
24th Apr 2022 01:04

Dear Diccon

Firstly, your two questions are both multi-faceted and cannot be easily, or fully answered in here.

On the first point... "Am I better to keep the types as separate businesses" is extremely difficult to answer. The advice will depend on you, your current/ prospective portfolio, your processes, your ability to administer the companies... and much more. Advice given for the addition of 2 FHLs to a 10-property Residential Portfolio differ to that given for the addition of 10 FHLs to a 2-property residential portfolio. This should therefore be discussed - in full - with your accountant and/ or tax advisor.

On the VAT side, there is a simple answer to how VAT registration will affect you rental INCOME (excl. expenditure). That is that residential property income (gross rents) is exempt (no VAT charged) whether the taxable person (in this case, the company) is VAT registered or not. The same would apply if you have commercial property that is not Opted for VAT purposes (i.e. a current Option to Tax). This does not always extend to extra charges (e.g. tenant recharges).

The issue, and the question, would be flipped and would be more centred around 'how the residential rental income may affect the FHL 'business'' - particularly from and expenditure perspective! With a mixture of exempt and taxable income, the business will be partially exempt. This can be complex to administer, difficult to understand, and awkward when assessing the relative benefits of each option. You may find you are better (or worse) off having a VAT-registered partially-exempt business. However, the potential increased admin could equally make this unworkable (or unviable - financially).

As with all property-related tax issues, advice will be entirely dependent upon specific circumstances... both now, and in the future. Additionally, the consideration of VAT registration, partial exemption and the impact now, and for future, would seriously suggest the need for informed, specific advice (not the type of responses available on a public forum).

It goes without saying... errors in decision-making and tax planning for property can come with heavy financial losses! If you don't understand the impact, are not confident in your knowledge, and don't feel you can make an informed decision yourself, take formal (paid for) advice.

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Replying to DKB-Sheffield:
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By EMH-Properties
25th Apr 2022 09:14

Thank you, really helpful information. Accepting that every situation is slightly different, the points around the feasibility of managing it all within one company are very useful l.

Certainly a very helpful cross check against what the accountant has to offer!

Thank you

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Replying to EMH-Properties:
paddle steamer
By DJKL
25th Apr 2022 10:40

You might also want to consider whether a FHL within a company rather negates one of the best tax breaks a FHL may offer i.e BADR re a future sale at 10% CGT rate.

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Replying to DJKL:
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By Luke Spooner
25th Apr 2022 14:38

Wouldnt BADR still apply to company shares if FHL is in the LTD company anyway? Assuming it's their personal trading company etc etc?

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Replying to Luke Spooner:
paddle steamer
By DJKL
25th Apr 2022 14:44

Possibly not, the limited apparently already holds a number of BTL properties- there is also the BPR issues with a hybrid beast.

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Replying to DJKL:
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By The Dullard
25th Apr 2022 15:22

There are BPR issues whether or not it is hybrid. FHLs are not generally business property.

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Replying to The Dullard:
paddle steamer
By DJKL
25th Apr 2022 15:46

I did not know that, thanks.

I must have merely assumed, always dangerous with tax.

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