The decision to purchase a guest house or hotel is a major milestone, filled with both excitement and stress. Understanding your options from the outset is crucial for realizing your aspirations. The day you commit to the purchase is the first step on your commercial journey, demanding a clear strategy and decisions aligned with your long-term goals.

The ideal approach to purchasing a business depends largely on the vendor’s existing structure, though you, as the buyer, ultimately control the outcome. Generally, there are two primary types of purchases:

1. Share Purchase:

• Possibility: Available when the business is already a limited company.

• Advantage: Reduced stamp duty rate (0.5% compared to potentially higher Stamp Duty Land Tax rates). This is a significant advantage given the land and building values often associated with these businesses. Exploring this option is essential whenever possible.

• Concerns:

  • Due Diligence: Imperative! You’re buying the company and its associated history, so thorough due diligence is crucial to identify and mitigate any financial risks.

  • Lack of Immediate Tax Reliefs: You’re buying the entity, not specific assets, so immediate tax reliefs aren’t available. This is a key bargaining point for negotiating the purchase price.

• Negotiation Leverage: The lack of buyer tax relief combined with vendor tax advantages on a share sale creates an opportunity for negotiation, potentially leading to a win-win outcome.

2. Purchase of Trade and Assets:

• Prevalence: The most common transaction type, applicable to all existing business entities.

• What You’re Buying: The business assets, often including the property and the goodwill of the business.

• Apportionment is Key: The vendor will likely want to apportion asset values in a way that benefits them, which is usually the opposite of what you want. Here’s how you should aim to apportion values:

  • Goodwill: As low as possible, as no tax relief is available throughout the business lifecycle. It only serves as a base cost when you eventually sell.

  • Property: As low as possible to minimize Stamp Duty Land Tax costs. Like goodwill, it only serves as a base cost when you sell.

  • Fixtures, Fittings & Other Assets: As high as possible. These items typically qualify for tax relief in full in the year of purchase, making them the most desirable for the buyer.

• Operating Structure: Decide how you want to operate the business (sole trader, partnership, newly formed limited company, or existing entity). Seek professional advice before making this decision! Choosing the wrong structure can lead to higher costs and taxes throughout the business’s life and upon exit.

Compliance & Deadlines:

Your chosen structure dictates your annual compliance needs, with defined deadlines and requirements.

• Self Assessment (Partnerships & Sole Traders): Governed by HM Revenue & Customs.

  • Key Deadlines:

    • 31 January (following the tax year ending 5 April): Self Assessment Tax Return submission and tax payment.

    • 31 July: Payment on account of tax liabilities (where required).

• Corporation Tax (Limited Companies):

  • Key Deadlines:

    • 9 months from the end of the accounting period: Submission of statutory accounts to Companies House.

    • 9 months and 1 day after the accounting period end: Corporation tax payment.

    • 12 months after the accounting period end: Corporation tax return submission.

  • Directors: Directors also fall under Self Assessment and require annual personal Tax Returns.

Start Smart, Succeed Long-Term

Day one of your business journey is crucial. Setting up your business correctly and achieving the optimum purchase position you for future success. While tax shouldn’t be the only motivator, seeking professional advice is essential to maximize your tax position and ensure a prosperous future for your guest house or hotel.

Contact our expert tax team today for more information about the tax implications of purchasing a guest house or hotel.