Furnished Holiday Let owned personally

FHL is owned personally, what would need to happen to incorporate the FHL?

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Client has a property which is a completely separate annex next to their main property and Principle Private Residence. They want to treat the property as a Furnished Holiday Let which they can as long as they satisfy the letting conditions. If it was tax advantageous to account for the FHL business through a Ltd Company, would it be correct that the annex/FHL property woud have to be transferred legally to the Ltd Company? If that were the case I am also suspecting that this will not be straightforward given that it is on the land that the client has their main residence on.
To ask the question another way, I am assuming that to trade through a Ltd Company with a single FHL, the Ltd Company would have to own the property as opposed the client owning the property personally and simply passing the income and expenses through the Ltd Company?         

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By possep
07th Jun 2023 21:21

Client looking to construct a way to save tax potentially by the look of it. Where is the annex exactly? This is man in the pub advice they have looked up.
What is the size of the plot? Would there be SDLT, VAT issues, PPR etc.... ( i am not checking) and unnecessary costs and a 100 other questions or facts or research that are needed. I really can't comment as it's a major task for you to offer advice on, at risk for you and your client. Personally I think its a non starter for you and have you considered CGT etc. It seems the treatment is complicated and using a forum and the facts listed are only a starting point.

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By tltodman
08th Jun 2023 09:26

Is the annex separate from the house (ie you could sell it separately from the house)?
If it's not then I'd say you can't put part of a building into a separate legal entity. You may, however, find the annex has a separate land registry entry and separate (business) rates status and bill but is still really part of one house. I have a client in exactly this situation and they have a door from their conservatory straight into the annex (locked when annex is let as annex has it's own external front door too) which is open when friends and family use it when it's really just an extra bedroom/space of the main house. If this is the case then Rent a Room relief is available if it is more favourable than FHL. That prevents PPR issues too.

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By JCresswellTax
08th Jun 2023 10:00

Surely, there could be a rental agreement between the newco and the current owner to rent the property at market value. The newco then rents as an FHL?

The owner would pay tax on rental income, but this would probably be less than if he was to receive FHL income.

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Replying to JCresswellTax:
Morph
By kevinringer
13th Jun 2023 11:22

I believe a rental agreement at market value would work; no need to transfer ownership. But OP doesn't say why client is considering trading through Ltd. If it is to save tax, then the combination of CT and dividend tax might mean the tax is larger than trading in own name. If it is to change the way income is taxed between spouses, then PIM1030 might be helpful.

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Replying to kevinringer:
paddle steamer
By DJKL
13th Jun 2023 14:59

Catch is it possibly would not give the property favourable tax treatment re CGT if later sold, the owner does not operate a FHL business from the property the company does.

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Replying to DJKL:
Morph
By kevinringer
13th Jun 2023 15:19

Forgive my ignorange, what favourable tax treatment would that be?

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Replying to kevinringer:
paddle steamer
By DJKL
13th Jun 2023 16:40
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Replying to DJKL:
Morph
By kevinringer
16th Jun 2023 11:50

Good point

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By I'msorryIhaven'taclue
08th Jun 2023 11:10

davebrown123 wrote:

To ask the question another way, I am assuming that to trade through a Ltd Company with a single FHL, the Ltd Company would have to own the property as opposed the client owning the property personally and simply passing the income and expenses through the Ltd Company? 

There's Rent2Rent, which arrangement I'm coming across more and more especially with HMOs. Does anyone here know whether that would work just as well with a FHL?

Late Edit: Beaten to it by Ms J Cresswell, which bodes well for the question I'd posed.

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