Generally companies are great because corporation tax rates are lower than income tax rates, however, for Holiday Lets company ownership can be a problem if you have personal use for the following reasons (of course if you don’t want to stay there these don’t apply):
ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £500,000.
You’ll need to complete an ATED return if your property:
- is a dwelling — find out the meaning of ‘dwelling’ in the next section
- is in the UK
- was valued at more than:
- £2 million (for returns from 2013 to 2014 onwards)
- £1 million (for returns from 2015 to 2016 onwards)
- £500,000 (for returns from 2016 to 2017 onwards)
- is owned completely or partly by a:
- partnership where any of the partners is a company
- collective investment scheme — for example a unit trust or an open ended investment vehicle
Chargeable amounts for 1 April 2022 to 31 March 2023
|Property value||Annual charge|
|More than £500,000 up to £1 million||£3,800|
|More than £1 million up to £2 million||£7,700|
|More than £2 million up to £5 million||£26,050|
|More than £5 million up to £10 million||£60,900|
|More than £10 million up to £20 million||£122,250|
|More than £20 million||£244,750|
Benefit in Kind
Here is an example from HMRC
A UK company purchases a flat in a French ski resort for £200,000. It is agreed that a market rental for the property would be £500 per week during the 6 month skiing season and £100 per week during the rest of the year. A husband and wife who are both directors of the company use the flat for holidays with their children for 3 weeks during the ski season and one week in the rest of the year. Their children are neither employees nor directors of the company. The employer advises that the sole reason the property was bought was as a holiday home for the husband and wife. It has only been used by them as a holiday home.
We would argue in this case that provided is equivalent to available for use. Assuming that the flat was habitable for the whole of the year we would seek a benefit under Part 3 Chapter 5 measured on availability for the whole of the year. The employer may argue that the husband and wife work full time and that this prevents them using the flat for more than the 4 weeks in the year of actual use and so they are effectively only provided with it for 4 weeks. We do not accept that argument.
If the cost of the accommodation exceeds £75,000, then the amount of the cash equivalent would be calculated in accordance with Section 106 ITEPA 2003 (see EIM11472). As the annual value is based on the open market rental, under ESC A91 the cash equivalent of the benefit is restricted to step 1 of Section 106. This would mean that the cash equivalent for the tax year would be £15,600 (£500 x 26 + £100 x 26). Under Section 108 that would be split between the husband and wife in whatever way was just and reasonable, presumably half each in this case (see EIM11472).
The amount of the benefit under section 106 is:
•Step 2 – ORI × (C – £75,000) (this amount is called the additional yearly rent), where:
•C is the cost of providing the living accommodation (see point three above) and
•ORI is the official rate of interest
•Step 3 – calculate the rent that would have been payable if the property had been let for the taxable period at that additional yearly rent (see EIM11428 for taxable period)
•Step 4 – add together the amounts calculated under step 1 and step 3. From this total subtract any excess rent paid by the employee. The answer is the amount of the benefit.
FLM Indicator have a calculator to work this out if you need it.
What would be the tax if its personally owned?
If the property is owned personally then a SA105 Box 10 Private Use Adjustment is made, this excludes a % of the property costs for the period of private use. If you only stay there for a short period its going to be a much lower cost.