Setting up a limited company to buy property

Is a limited company structure right for your property investment?

If you’re a higher rate taxpayer, or you might be in the future, you could save a huge amount of tax by setting up a limited company to buy property. And those tax savings are going to grow in the next three years, too. If you thought that setting up a company was difficult, think again.

In our last post, we looked at the tax benefits of setting up a property company. From 2017, these tax benefits will increase even further. In his 2016 budget, George Osbourne introduced some big changes, and the tax rules that are changing could put a big dent in your property investment profits by 2020 – especially if you are a higher rate taxpayer. By setting up a limited company to organise your property investments, you’ll be exempt from the worst effects of these changes.

Is setting up a limited company to buy property easy?

Before setting up a limited company to buy property, you’ll need to get prepared. Once you’re ready to set up your company, then the process is simple. Here are the basic requirements for company registration:

• A company name – this can’t be the same as an existing company, and mustn’t contain what would be considered a ‘sensitive word’, or suggest a connection with a governmental body. (You’ll also find there are rules about how and where you can and must display your company name.)
• A company address – you might decide to have a registered address and a trading address
• At least one director and one shareholder – this might be the same person, but you might decide to have several directors/shareholders (for example husbands/wives and children)
• Shares must be detailed – what type are they, how many, and what voting rights are attached
• A memorandum of association that details the agreement to form the company
• Articles of association that detail how the company is run

After considering all the above, you’re 90% of the way to setting up a limited company to buy property. Before the process is complete, you’ll need to register your limited company with Companies House. This can be done in one of four ways:

• Online, using the government website to do so. You can only do this providing you use standard articles of association
• By post using form IN01
• By third party software
• By using an agent, of which there are many, charging on average around £75

Today, the most common way of forming a company is by using an agent. This is typically a process that is completed online, and takes just a few minutes (providing you’ve prepared for it).

Is setting up a limited company to buy property right for you?

If you pay tax at above the basic rate, then you’ll save tax by putting your property investment in a limited company structure, whether you have a single property or plan to build a sizeable property portfolio over a period of time (and the tax saved will help you build that portfolio in less time).

Even if you are currently a basic rate taxpayer, setting up a limited company to buy property might still be the right option – especially if you want to build a large portfolio, expect to become a higher rate taxpayer in the future, or want to protect your property investment from inheritance taxes.

Just like the goals of your property investment, the reasons for setting up a limited company to buy property are many and varied. Whether it’s the right course of action depends upon your individual circumstances. For those that haven’t set up a company before, the first time can be a daunting process.

We’re here to help you decide whether setting up a limited company to buy property is a sensible strategy for your personal profile: simply get in touch today.

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