Unlock Tax Advantages and Protect Your Assets
Personal Vs Limited Company
If you’re starting out in property investing, it’s easy to feel overwhelmed and not understand if you should invest in your personal name or in a limited company.
I’ve been there myself, but over the years, I’ve learned how crucial it is to set things up the right way from the beginning and benefit from the advantages of holding your assets in a limited company rather than your personal name.
Why Should You Use a Limited Company for Property Investment?
Before we dive into the nitty-gritty of setting up a limited company, let’s talk about why this route is a smart move. If you’re asking yourself, “Do I really need a limited company for property investing?” here’s why the answer is likely “yes.”
Tax Advantages
Since the introduction of Section 24 in the UK, landlords owning properties in their personal names can no longer deduct mortgage interest as an expense.
This has drastically increased their tax bills. However, when you own property through a limited company, mortgage interest remains deductible as a business expense, which can significantly reduce the amount of tax you pay.
Liability Protection
Separating your personal finances from your property investments is crucial.
If something goes wrong in your property business—like a tenant lawsuit or financial troubles—your personal assets (like your home or savings) won’t be at risk.
The limited company shields your personal wealth, providing peace of mind.
Another advantage of buying your property in a limited company
Flexibility to bring in co-investors for joint ventures!
Scalability: A company structure gives you the flexibility to bring in co-investors for joint ventures, scale your property portfolio faster, and manage everything efficiently.
This is particularly useful when growing your investments to multiple properties. And let’s face it, no one wants to stay small forever!
Steps to Set Up a Limited Company for Property Investing in the UK
1
Register Your Limited Company
5
Appoint a Registered Office
2
Set Up a Business Bank Account
6
Get the Legal Documents in Order
3
Define Your Company’s Structure
7
Managing and Growing Your Property Portfolio
4
Choose a Registered Office
8
Conclusion
Step 1
Register Your Limited Company
The first step is registering your company with Companies House. Don’t worry, this isn’t as complicated as it sounds, and I’ll guide you through the process.
Choosing Your Company Name
The name you choose may reflect your business, but it’s also a personal choice.
Many property investors like to include the word “property” or “investments” in their company name but feel free to get creative. Just make sure it’s professional and easy to remember.
Don’t forget that you can have a trading name (the popular name customers know) separate from your company name, so don’t get stuck finding the ‘perfect name.’
Selecting the Right SIC Code
The Standard Industrial Classification (SIC) code is a key part of registering your company. It tells Companies House what your business does.
For property investment, the general code is 68209, which covers “other letting and operating of own or leased real estate.” This code ensures lenders and tax authorities know your company’s primary activity is property investment.
Depending on your business activity in property, the other SIC codes in Property Investing are:
- 68100 – Buying and selling of own real estate
- 68320 – Management of real estate on a fee or contract basis
Mistakes here can cause trouble down the line, especially when you’re applying for a buy-to-let mortgage. Lenders want to see that your business is mainly focused on property.
Filing the Documents
You can register your company directly through Companies House online for a small fee. Alternatively, you can use a company formation service like Getground, which can handle everything for you. In either case, you’ll need to file:
- Memorandum of Association: This confirms your intention to form a company.
- Articles of Association: These are the rules that outline how your company will be run, covering things like director powers and shareholder rights.
Don’t be intimidated by these formalities. Think of it as laying the foundation for a solid investment business—it’s worth getting it right from the start. Stay up to date with any changes to the UK company law.
Step 2
Set Up a Business Bank Account
Once your company is registered, the next step is opening a business bank account. This is where all the income and expenses related to your property business will flow through—rent payments, mortgage repayments, maintenance costs, you name it.
Keeping your business finances separate from your personal ones is essential for:
- Tax reporting: Clear records will make it easier to claim deductions and reduce your tax bill.
- Mortgage approval: Most lenders will require a dedicated business account for your company.
When choosing a bank, go with one that offers great customer service and meets your needs as a property investor. Some features to look for include:
- Direct debit capabilities
- Faster Payments (for speedy transactions)
- International payment options (in case you have investors from overseas)
Remember, choosing the right account can simplify your financial management and prevent future headaches.
Step 3
Define Your Company’s Structure – Shareholders and Directors
The next step is deciding who will own and run the company. In many cases, property investors set themselves up as both the shareholder (owner) and the director (manager). But if you’re investing with others, you’ll need to make some decisions here.
Shareholders
Shareholders are the people who own the company. If you’re starting the company by yourself, you’ll likely own 100% of the shares.
However, if you’re co-investing with a partner or others, you’ll need to divide the shares among yourselves based on your contributions and agreement.
Keeping your business finances separate from your personal ones is essential for:
- Tax reporting: Clear records will make it easier to claim deductions and reduce your tax bill.
- Mortgage approval: Most lenders will require a dedicated business account for your company.
Directors
Directors manage the day-to-day operations of the company. In small companies, it’s common for shareholders to also act as directors. When you’re the sole investor, this means you’ll manage everything from finding deals to overseeing maintenance.
If you’re investing with others, it’s crucial to have a Shareholders’ Agreement. This document outlines how decisions are made, profits are shared, and disputes are resolved. It’s about protecting everyone’s interests and preventing conflicts down the road.
Step 4
Appoint a Registered Office
You’ll need a registered office for your company. This is the official address where all correspondence from Companies House and HMRC will be sent. It must be a physical address in the UK.
You can use your home address, but many people opt for a service that provides a registered office address. This keeps your personal information private, which can be especially important for public records. If you’re using a company formation agent, they’ll likely offer this service.
Step 6
Optimise for Tax Efficiency
Now, here’s where things get really exciting—optimising your limited company for tax benefits. When you own properties through a limited company, you can deduct mortgage interest as a business expense, lowering your corporation tax liability.
Additionally, profits earned through your limited company are taxed at the corporation tax rate, which is generally lower than personal income tax rates. You can reinvest these profits or withdraw them via dividends, which can also result in a lower tax bill.
Capital Gains Tax (CGT) is another area where companies come out ahead. When selling a property owned by a company, the CGT rate is often lower than for properties owned personally. This means more money stays in your pocket.
Step 5
Get the Legal Documents in Order
Every limited company requires a few key legal documents to be compliant and protected:
- Memorandum and Articles of Association: These set out how your company will be run.
- Shareholders’ Agreement: As I mentioned earlier, this is crucial when more than one person is involved.
- Director’s Loan Agreement: If you plan to inject personal funds into the company, this agreement ensures you can get your money back without paying additional taxes.
Step 7
Managing and Growing Your Property Portfolio
Once your limited company is up and running, it’s time to focus on growing your portfolio. Setting up a company allows for easier scalability. You can hold multiple properties under the same company or even create separate companies for each property to reduce liability.
You’ll need to stay on top of filing annual accounts and tax returns. Most investors, myself included, work with professional accountants to manage this, ensuring everything stays compliant and efficient. It’s worth the investment to have your financials managed professionally, allowing you to focus on growing your portfolio and finding new opportunities.
Conclusion
Setting Up a Limited Company is the Smart Move
As an experienced property investor, I can tell you that setting up a limited company is one of the smartest moves you can make. It opens doors to tax savings, protects your personal assets, and sets you up for long-term success. If you’re serious about growing your property portfolio, the benefits far outweigh the costs and complexities.
Need Extra Support Setting Up?
I’m always happy to have a chat and guide you through the process or refer you to a reputable company setup service provider in my network.
Feel free to reach out if you need advice on structuring your company or if you’d like help finding the best investment opportunities.
Let’s get you started on the right path to successful property investing!
