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Hotel for sale in Scotland: what seasonal trade, purchase tax and the alcohol licence do to the price

By Provenance Diligence team · .

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Contents

1. Seasonal trade changes what you are buying

Short answer: A seasonal hotel earns most of its year in a few months but pays for twelve. The price you can justify comes from a full year of monthly figures, not from the best month on the agent's brochure.

The agent's brochure usually shows turnover and a profit line. It does not show the shape of the year. Shape decides how much cash you need on the day you complete and how much you can safely borrow.

Start with the standing costs, meaning the costs that run whether or not a guest arrives. For a hotel these include the business rates bill, insurance, heating and power in a closed building, repairs, a manager who stays all year, and loan interest. They are the same in February and in August.

Next come the variable costs, meaning the costs that rise and fall with trade. Food, drink, laundry and the wages of seasonal staff sit here. In the example below they take 55% of turnover, so each pound of sales leaves 45 pence to pay the standing costs.

Illustrative figures. A hotel opens April to October and shuts November to March. Its monthly turnover is as follows.

MonthTurnover
April£38,000
May£52,000
June£66,000
July£84,000
August£88,000
September£60,000
October£32,000
Season total£420,000

Check: 38 + 52 + 66 + 84 + 88 + 60 + 32 = 420 (in thousands of pounds).

The standing costs for the year are £93,500: rates £14,000, insurance £9,500, standby heating and power £6,000, repairs £12,000, a year-round manager £34,000 and loan interest £18,000. Check: 14,000 + 9,500 + 6,000 + 12,000 + 34,000 + 18,000 = 93,500.

Variable costs at 55% of £420,000 are £231,000. The year's profit before owner's drawings is therefore £420,000 − £231,000 − £93,500 = £95,500. Check: contribution of 45% × £420,000 = £189,000; £189,000 − £93,500 = £95,500.

Now annualise July. July turnover of £84,000 at 45% leaves £37,800. Monthly standing costs are £93,500 ÷ 12 = £7,791.67, so July leaves £30,008.33. Twelve times that is £360,100, against a real year of £95,500. The shortcut profit is 3.8 times the true figure, an overstatement of £264,600.

A buyer who pays a multiple of the shortcut number pays for months that never happen. Ask the seller for the monthly management accounts for the last three trading years, so you can build the shape yourself. Ask for the bank statements from November to March of each year, because they show what the quiet months really cost.

The same figures give you the break-even point. Standing costs of £93,500 divided by the 45% contribution is £207,778 of turnover, since 0.45 × £207,778 = £93,500 to the nearest pound. Cumulative turnover is £156,000 by the end of June and £240,000 by the end of July. The hotel therefore stops losing money during July, roughly 62% of the way through that month.

That reading changes how you judge a poor early season. A wet April and May that cut turnover by a fifth push the break-even later in July in this example. Check: April and May fall from £90,000 to £72,000, so turnover to the end of June falls from £156,000 to £138,000, and the remaining £69,778 to reach £207,778 is about 83% of July's £84,000. If July also falls short by more than £14,222, the break-even moves into August, and you depend on August and September for every pound of profit.

The quiet months have a second cost: cash. Standing costs of £93,500 spread evenly mean November to March consumes £93,500 × 5 ÷ 12 = £38,958 with no sales to cover it. Add the stock, redecoration and recruitment you buy before reopening. Your lender and your own reserves must carry that gap each year. Section 4 adds the purchase taxes on top.

Seasonality also reaches the legal side. The premises licence lists the hours at which alcohol may be sold, and sales are allowed only within them.

2. The premises licence: who holds it and what a sale does to it

Short answer: The alcohol licence belongs to a named holder and a named building, and a sale of the business does not move it by itself. Selling alcohol without a premises licence is an offence, so the transfer route decides whether you can serve a drink on your first day.

Under the Licensing (Scotland) Act 2005, a "premises licence" is a licence issued by a Licensing Board that authorises the sale of alcohol. The Licensing Board is the local body of councillors that issues and controls these licences. The licence is tied to premises [Licensing (Scotland) Act 2005, s.17].

The offence is plain. Alcohol is not to be sold except under a premises licence or an occasional licence. Selling it, or allowing it to be sold, in breach carries a fine up to £20,000, up to six months in prison, or both [Licensing (Scotland) Act 2005, s.1].

For you, the sums are lopsided. A hotel bar often provides a large share of turnover, and one unlicensed evening exposes you to that penalty. The risk is not remote theory; it is the direct price of getting the order of events wrong.

The structure of the deal then matters. Take two cases.

In an asset sale, you buy the building and the business from the person or company running it. The licence stays in the seller's name until the Board changes it. You must arrange a transfer.

In a share sale, you buy the company that runs the hotel. The company stays the holder of the licence, because the same legal entity keeps trading. That is a conclusion about how the entity works, not a rule quoted from the Act, so confirm it for your deal.

Even then, things change inside the licence. The premises manager is a person named in the operating plan, and a change of manager is a variation that the Act classes as minor. If you replace the manager on day one, you need that variation too.

One more point sits under the sale. A transfer is not automatic. The Board must grant it if the police reply raises nothing, and otherwise it holds a hearing and can refuse. Plan for the hearing in your timeline, not only the easy case.

Before you exchange contracts, ask the seller for these documents.

  1. The current premises licence, including the operating plan and layout plan. A copy of the licence page alone is not enough, because the plan holds the hours and the capacity.
  2. The Licensing Board's most recent receipt for the recurring licence fee, which the mandatory conditions require to be paid.
  3. Any correspondence from the Board or Police Scotland in the last three years that mentions the premises, such as warnings, reviews or complaints.

If the seller is a company, read its record at Companies House too. A company in administration or liquidation changes the licence position. A sample report shows how the licence, charges and insolvency checks sit together on one page, which saves you assembling them from three places.

Question for a licensing solicitor, if you need one: in this particular sale, who holds the licence on completion day, and exactly which application puts the licence in your name before you sell your first drink?

3. Tax on the purchase: LBTT, VAT and the seller's position

Short answer: Land and Buildings Transaction Tax (LBTT, Scotland's tax on property purchases) is charged on the price of a hotel at the non-residential rates, and VAT can be avoided on a sale as a going concern only if specific conditions are met. A missed VAT condition adds a bill on top of the price.

LBTT. LBTT applies to non-residential and mixed property, and each case is judged on its merits [Revenue Scotland, LBTT non-residential property]. A hotel is a commercial building, so the non-residential rates are the starting point. For transactions on or after 25 January 2019 the rates are 0 percent up to £150,000, 1 percent from £150,001 to £250,000 and 5 percent above £250,000 [Revenue Scotland, LBTT non-residential property].

Revenue Scotland gives a worked example for a £465,000 non-residential purchase: £11,750 of LBTT [Revenue Scotland, LBTT non-residential property]. The same method applies to a larger price.

Illustrative figures. A hotel is bought for £620,000 and the whole price is taken as non-residential.

  • The first £150,000 is at 0 percent, which is £0.
  • The next £100,000, from £150,001 to £250,000, is at 1 percent, which is £1,000.
  • The remaining £370,000 (620,000 − 250,000) is at 5 percent, which is £18,500. Check: 370,000 × 5 ÷ 100 = 18,500.
  • The total is £0 + £1,000 + £18,500 = £19,500.

Check the method against Revenue Scotland's example: £465,000 gives £1,000 on the middle band and 5 percent of £215,000 (465,000 − 250,000), which is £10,750, so £11,750 in all. The method reproduces the published figure.

Mixed property is the line to watch. A hotel with an owner's flat, or cottages let long-term, raises the question of whether part of the price is residential. The Revenue Scotland page states that each case is judged on its merits, so how the price is split is a matter for your adviser and the contract.

VAT. The treatment of VAT depends on how the purchase is structured. Under article 5(1) of the Value Added Tax (Special Provisions) Order 1995, a transfer of a whole business as a going concern is outside the scope of VAT if the assets are used in the same kind of business. The buyer must also be VAT-registered, or must immediately become registered where the seller is a taxable person [Value Added Tax (Special Provisions) Order 1995, art.5(1)].

Land complicates this. Article 5(2) excludes a land grant from the going-concern rule where an option to tax has been exercised, unless the conditions in paragraph (2A) are met. Those conditions are that the buyer has exercised an option to tax effective on the relevant date, has given the notification required by paragraph 20 of Schedule 10 in writing, and has told the seller that paragraph (2B) does not apply to them [Value Added Tax (Special Provisions) Order 1995, art.5(2), (2A) and (2B)].

The practical reading, as a conclusion from those provisions, is that a hotel seller who opted to tax the building brings the buyer into a sequence of steps that must all happen by completion. Ask the seller for confirmation of whether an option to tax is in place over the property, with the date and the notification to HMRC.

What a failed condition means. Article 5 treats the sale as a going concern only if its conditions are met, so a missed condition puts the sale outside that rule. Ask the seller to confirm in writing, before exchange, that each condition is met and by whom.

The seller's tax and why it concerns you. Business Asset Disposal Relief is a lower rate of capital gains tax on selling a business. It is 18 percent for disposals from 6 April 2026, 14 percent for disposals from 6 April 2025 to 5 April 2026 and 10 percent for disposals on or before 5 April 2025 [gov.uk, Business Asset Disposal Relief].

The conditions differ by structure. To claim on selling or closing a business, the seller must be a sole trader or business partner and have owned the business for at least 2 years up to the sale date [gov.uk, Business Asset Disposal Relief]. To claim on selling shares, the seller must be an employee or office holder for at least 2 years, the company must mainly trade or be a trading group holding company, and for non-EMI shares the seller must hold at least 5 percent of shares and voting rights as a personal company for 2 years [gov.uk, Business Asset Disposal Relief].

This matters to you because the seller's tax position can push the choice between buying the business and its assets or buying the company's shares. The choice then changes your risk. In a share purchase the company that holds the licence stays the holder, so no change of holder arises under section 33 of the 2005 Act, as a conclusion from the structure; but you inherit the company's history. In an asset purchase the licence must move by a transfer.

One question for a tax adviser covers this section: for this sale, which structure leaves the buyer with a valid going-concern treatment for VAT, what LBTT applies to the price split, and what must the contract say about an option to tax?

4. From asking price to the cash you need before the first guest

Short answer: The asking price is the smallest number in the deal. Add the tax on the purchase, the standing costs of the closed weeks and a reserve for the first winter, and the cash you must hold is well above the price.

This section pulls the worked figures of the earlier sections into one sum. Every number below comes from an earlier section, where its working and its check are shown, except where marked as an assumption.

Illustrative figures. The hotel is priced at £620,000. You complete on 1 March 2027 and reopen on 1 April 2027.

LineAmountWhere it comes from
Purchase price£620,000Asking price in this example
LBTT on the whole price as non-residential£19,500Section 3
Standing costs for March, one month of £93,500 a year£7,792Section 1
Cash on completion day plus the closed month£647,292Sum of the three lines above
Reserve for the first winter, November to March£38,958Section 1
Total cash to have available£686,250£647,292 + £38,958

Checks. £620,000 + £19,500 = £639,500, and £639,500 + £7,792 = £647,292. The monthly standing cost is £93,500 ÷ 12 = £7,791.67, rounded to £7,792. Then £647,292 + £38,958 = £686,250.

The total is £66,250 above the price, which is 10.7 percent of it. Check: 66,250 ÷ 620,000 = 0.1069.

One item has no figure in this sum because the number depends on documents you have not yet seen: any VAT cash-flow gap (section 3). It must be priced from the seller's paper or a quote before you fix an offer.

A price test on the example. In section 1 the season's profit was £95,500 on £420,000 of turnover, after interest of £18,000 and a manager's cost of £34,000.

  • The price of £620,000 divided by £95,500 is 6.49, so the price equals about 6.5 years of that profit. Check: 95,500 × 6.49 = 619,795.

A weak first season. Run the same hotel with 70 percent of the example's turnover, while the standing costs stay at £93,500.

  • Turnover is £420,000 × 0.70 = £294,000. Check: 420,000 × 7 ÷ 10 = 294,000.
  • With variable costs at 55 percent, each pound of turnover leaves 45 pence. The contribution is £294,000 × 0.45 = £132,300. Check: 294,000 × 45 ÷ 100 = 132,300.
  • Profit after standing costs is £132,300 − £93,500 = £38,800. Check: 93,500 + 38,800 = 132,300.
  • The full-trade profit was £95,500, so a 30 percent fall in turnover cuts profit by £56,700, which is 59 percent. Check: 95,500 − 38,800 = 56,700, and 56,700 ÷ 95,500 = 0.594.

Profit falls faster than turnover because the standing costs do not move. A fall of 30 percent in sales takes away 59 percent of the profit. At £38,800 of profit the first winter reserve of £38,958 is about spent, which is the reason it sits in the table above as cash to hold and not as a forecast.

The price now equals £620,000 ÷ £38,800 = 16.0 years of profit. Check: 38,800 × 16 = 620,800. The percentages of 70 and 55 are assumptions for the illustration, so use the seller's own monthly accounts, and ask for the weakest season in the accounts you are given, not the average.

The figures show how far a price can move on one cost line. They do not say what a fair multiple is for any hotel, and no multiple appears in the sources behind this post.

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Sources

Retrieved 2026-11-06.