Holiday home ownership

Jaco70

My elderly parents own a small property in Cornwall, purchased about twelve years ago without a mortgage. 

It seems likely that council tax for holiday homes will dramatically increase in the near future, maybe to 200% of that levied on owner occupiers.
My mum’s reaction is to sell it, although she doesn’t need the money, but we enjoy using it. 

We will probably just offer to pay the tax ourselves, but I’ve seen stories of people avoiding these increases by putting properties in a limited company.
What are the pros and cons of doing this?

SDLT_Geek

Jaco70 said:

My elderly parents own a small property in Cornwall, purchased about twelve years ago without a mortgage. 

It seems likely that council tax for holiday homes will dramatically increase in the near future, maybe to 200% of that levied on owner occupiers.
My mum’s reaction is to sell it, although she doesn’t need the money, but we enjoy using it. 

We will probably just offer to pay the tax ourselves, but I’ve seen stories of people avoiding these increases by putting properties in a limited company.
What are the pros and cons of doing this?

One disadvantage is stamp duty land tax.  This will be due on the market value of the property with the extra 3% SDLT.

Worse, if the property is worth over £500,000 then SDLT would be due at a flat rate of 15% on the market value.

GDB2222

 What some people are doing is turning their family holiday home into a holiday home business. They then claim that it  is subject to business rates, which is nil if the rateable value is below £13,500.

anselld

Holiday homes which are actually operated as Furnished Holiday Lets do not come under the Council Tax regime.  Hence they could let it out as FHL provided that is in excess of 105 days per year and family could still use it whilst vacant.    They would register for change of use to busines rates and with only one property there would be nothing to pay due to small business rate relief.  (as things stand)

theartfullodger

CGT also on any sale (assuming there is a gain)

GDB2222

There are lots of guides to letting out holiday homes. Here is one, chosen at random.

https://www.sykescottages.co.uk/blog/council-tax-business-rates-holiday-lets/


The snag with holiday letting is that you need to do it fairly assiduously. You need to let it out at least 105 days a year, and considering how short the season is that may be difficult. It’s easier if you are very flexible about when you use it. It also ceases to be your own personal family property. 

On the plus side, you don’t need to lift a finger. There are firms that will organise everything for you (at a cost !), including cleaning and maintenance. 

TripleH

You can sell the holiday home to the business for whatever price you like but you pay stamp duty on the open market value as a minimum. (If property is worth £350k but you sell to business for £45k, you pay stamp duty as if you sold for £350k).

You need to ensure the limited company is on top of its paperwork otherwise you could loose the property.

GDB2222

TripleH said:

You can sell the holiday home to the business for whatever price you like but you pay stamp duty on the open market value as a minimum. (If property is worth £350k but you sell to business for £45k, you pay stamp duty as if you sold for £350k).

You need to ensure the limited company is on top of its paperwork otherwise you could loose the property.

I don’t understand why you would need a limited company? 

Keep_pedalling

theartfullodger said:

CGT also on any sale (assuming there is a gain)

Or transferring ownership to a Ltd company or other members of the family. 

TripleH

Sorry mind elsewhere at moment.

I think the Op mentioned a limited company in their post. Yes you don't need a limited company and think if you use it yourself there is a benefit that is taxable. I wouldn't own the property in a limited company but it depends who and how it is owned.