Investing Profits in Furnished Holiday Lets
/The advantages of the Annual Investment Allowance (AIA) for property investment.
Great news for limited company owners investing profits in furnished holiday lets.
The long-anticipated fall in the AIA for qualifying capital expenditure for businesses is no longer taking place.
The planned reduction to £200k from April 2023 has been scrapped, with the AIA remaining set at £1 million.
This is great news for limited company owners, who can deduct the full value of any qualifying capital expenditure using up to £1 million in profits in the year the purchase is made.
This makes investing profits in furnished holiday lets both a smart and lucrative way for limited company owners to reduce the tax burden on their business.
Investing profits in furnished holiday lets provides a sound investment opportunity in a market known for its strong returns.
The net rental income along with tax deductions make furnished holiday lets (FHLs) a secure, high-yield investment.
If you own a limited company and are looking for an investment opportunity for company profits while reducing your overall tax bill, contact the Holmeshaw team to find out more about our furnished holiday lodge property portfolio.
Investing profits in furnished holiday lets - Plant and machinery: A definition
In our article in March on the Spring Budget Update, we explained the ‘full expensing’ of capital allowances announced by The Chancellor:
“From April 2023 until the end of March 2026, companies can claim 100% capital allowances on qualifying plant and machinery investments.”
Moreover, some FHLs are classed as ‘plant and machinery’ by HMRC.
The definition applies to holiday lodges and caravans along with certain fixtures and fittings;
"which is provided mainly for holiday lettings on a holiday caravan site, is plant whether it is moved or not."
For a full explanation of what is classed and plant and machinery, you may like to read the HMRC capital allowances manual.
The Barns, Furnished Holiday Let, Shropshire
Corporation Tax
Corporation Tax is levied against profits made by limited companies and currently stands at 19% up to £50k and 25% over £250k, with a tapering level in between these two figures.
However, an added benefit of the annual investment allowance for business investors looking for a way of reducing their tax bill is the chance to minimise corporation tax.
For example, if a limited company has profits of £250k or above, the level of corporation tax is set at the higher rate of 25%. But if £165k of this profit is invested in a Holmeshaw furnished holiday lodge, this equates to a tax cut of 25 pence for every pound invested, plus a reduction in the level of corporation tax on the remaining profits.
Limited company owners investing profits in furnished holiday lets can, therefore, use the higher threshold of the annual investment allowance for enjoying immediate tax relief on their capital expenditure while reducing the rate of tax levied against profits.
Furthermore, an FHL property investment returns a high annual yield via the holiday rental market.
This means investing in property through a limited company enjoys an annual return on the initial capital, which can also be tax efficient through FHL tax benefits.
Other tax benefits for investing in FHLs via limited company profits
As well as gaining through a reduction in corporation tax, investing profits in furnished holiday lets provides even more tax benefits for business investors:
FHLs draw more tax allowances when compared to residential dwellings, commercial lettings or other long term property rentals.
The tax payable on the original investment can be reduced through claiming capital allowances.
Capital allowances apply to other assets like furniture and soft furnishings which are also classed as ‘plant or machinery’ by HMRC.
Any rental income is classed as earnings, allowing greater tax-free contributions to a pension scheme. For further information, you may like to read our blog ‘How property investment can help in retirement.’
Alongside these important tax considerations, limited liability protection safeguards personal assets from business-related liabilities, providing investors with an additional level of security for peace of mind.
You are in safe hands investing profits in furnished holiday lets with Holmeshaw property investments
The UK staycation market offers a lucrative investment opportunity to those searching for a return on invested company profits. You can find out why in our blog ‘Why the UK staycation market is a sound investment.’
At the beginning of this article, we cited using £165k of the annual investment allowance of company profits as an initial investment.
If £165k is invested into a Sky lodge (sleeping six people), at the Holmeshaw Woodlakes Retreat @ Norfolk, this is how the figures stack up:
Initial cash investment of £165,000
Provides investors with a return of 10% NET rental income (£16,500 p.a.)
This gives a total yield of £82,500 over a five-year investment period
There is no stamp duty to pay
A buyback option is available at 100%
In addition:
Specialist property management is all taken care of for your peace of mind
Secure hands-free, high-yield investment
An asset where you can take your family for a holiday!
Our property portfolio includes a number of attractive options throughout the UK.
Download our guide to the Woodlakes Retreat to find out more about this project or talk to the Holmeshaw team today to discuss this and our other holiday lodge investment opportunities:
Sherwood Forest Retreat @Nottingham
The Barns @ Blackwater Meadow, Ellesmere
You can rest assured that our Holmeshaw tailored service means we have completed our due diligence. On behalf of our clients, we make sure that the financials stack up and that all contractual stipulations have been carried out.
What’s more, we would never recommend a property investment opportunity that we would not invest in ourselves.
Win-win investment opportunity
In addition, the annual income offers financial certainty, which in today’s economic climate, is difficult to come by.
One major point of difference from general medium to long term property investment or savings accounts, is that the yield offers more than the current rate of inflation over a five year investment period, to ensure that any profits invested continue to grow.
The advantages of the £1 million annual investment allowance for property investment enable effective and efficient financial management practices.
The potential for maximising tax savings through a reduction in corporation tax coupled with other tax advantages offered by FHLs is appealing to owners of limited companies.
The combination of these benefits and a booming UK staycation market make FHLs an attractive and lucrative proposition for those seeking a rewarding property investment, using the annual investment allowance to provide financial certainty for company profits.
If you would like to learn more about how investing profits in furnished holiday lets is a lucrative way of making profits work harder, contact the team at Holmeshaw to discuss our full range of holiday lodge investment opportunities.
Holmeshaw encourages investors to seek advice from a financial advisor before deciding to invest their capital into property or any other form of investment.
