What are investment property companies and how can I start a limited company?

25 SEP 2023 15 MIN READ

With many landlords looking at buying multiple properties to rent out it is important they understand their options are. Landlords have the option of buying property personally or through setting up a limited company.

There are a lot of factors landlords should consider before setting up a limited company, such as how many properties they own, how they’d like to manage rental income and how long they think they will own the property for. Read on to find out more and ensure you’re making an informed decision about how to proceed.

What is a property investment company?

An investment property company is a limited company that can be used to buy property for “investment purposes” which means that they are not your primary residence, and they generate income for you.

It could also refer to a company that helps you invest in property, guiding you on everything from purchase to property management.

For the purposes on this article, we’ll be talking about the first kind mentioned – where you’re using a limited company to buy investment properties.

What is SPV?

SPV stands for “special purpose vehicle” and is another name for a limited company which is used only for a specific purpose. In this case, an SPV would be a limited company which is used to buy and rent out properties.

If you have another limited company, you may want to set up an SPV for investment properties rather than trying to buy them through your existing company as this may be preferable for lenders.

What does a property investment company do?

A property investment company (PIC) is a business which can help people with finding and managing investment properties. The services you get will vary from PIC to PIC but you might expect them to help source properties, guide you through the purchase process, liaise with solicitors and mortgage lenders, and potentially even manage the property for you.

PICs can be helpful in saving you time and reducing the amount of admin you have to do.

Personal vs limited company owned property

A personally owned property will have the deeds and mortgage in your name and you will personally pay for income tax on any profits. If you own property through a limited company, then the deeds and mortgage will be in the company’s name and the company will pay corporation tax on any profits.

What are the pros of a buying through a limited company?

If you’re considering the purchase of a buy-to-let property through a limited company, here are some of the benefits that you may find:

Potential for lower taxes payments

As a private landlord, any profit you make from your rental will be subject to income tax. While the tax rate varies between UK countries, in England and Wales the 2023/2024 rates are as follows:

Band Taxable income Tax rate
Personal Allowance Up to £12,570 0%
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £125,140 40%
Additional rate over £125,140 45%

For further income tax rate information from the UK Gov, click here.

If you buy property through a limited company, you’ll be subject to corporation tax instead, which at the time of writing is as follows:

Band Taxable income Tax rate
Small profits rate £50,000 or less 19%
Marginal Relief £50,000 to £249,999 Variable
Main rate £50,271 to £125,140 25%

For further income tax rate information from the UK Gov, click here.

As you can see, there is potential to be taxed at a lower rate if you are earning through a limited company than if you are privately gaining income from your properties.

Business tax relief

Since April 2020, private landlords can no longer deduct any of their mortgage expenses from rental income to reduce their tax bills. Now, they receive a tax-credit, based on 20% of their mortgage interest payments instead. Meanwhile, mortgage interest is still an allowable expense for limited companies, so they’ll be able to deduct this cost before paying corporation taxes.

A limited liability company can also help you pass property assets to your loved ones while minimising estate taxes. Business Relief for Inheritance Tax may enable you to 100% or 50% Business Relief on qualifying properties that your family were shareholders for. You can learn more about the qualifying criteria here: Business Relief for Inheritance Tax: What qualifies for Business Relief - GOV.UK (www.gov.uk)

Controlling risk

When you use a limited company, you’re typically less exposed to risk than if you’re privately owning. Limited companies take on the risk rather than the individual, so often the financial liability will only be for what the company owns not your own personal assets.

However, it is possible that you’re asked to personally guarantee a property even when purchasing via a limited company, so pay attention to the finer details of any lending contracts you sign.

What are the cons of buying through a limited company

There are, of course, also drawbacks to buying property through a limited liability company, so let’s take a look at some of the disadvantages to using this route:

More administration duties

As a private landlord, you’d still be reporting your rental income but it’s straightforward enough process that many landlord feel comfortable completing themselves. However, as the owner of a limited company, filing annual accounts may prove to be a bit more complex as far as paperwork goes. The more properties you own, the more complicated your admin becomes so you may even need to get the help of a tax accountant to ensure you’re filing correctly.

Moving between a limited company and personal ownership isn’t easy

If you already own several properties as an individual, switching them over to limited company ownership can be costly and depending on how you change ownership (transferring deeds or selling it at market value) the process can be quite difficult to navigate.

Some costs you may encounter are stamp duty, capital gains tax, and legal fees so be sure to research these costs and prepare properly for them.

Harder to find lenders

It may be harder to find a suitable lender and if you are able to find a lender who is willing to work with a limited company they may expect a personal guarantee, have higher interest rates than you’d find for a personal mortgage or have a lower loan to value percentage.

With all that in mind, you may need to have much more initial capital in order to buy properties as a limited company.

How to set up a limited company for property investments

It may be harder to find a suitable lender and if you are able to find a lender who is willing to work with a limited company they may expect a personal guarantee, have higher interest rates than you’d find for a personal mortgage or have a lower loan to value percentage.

With all that in mind, you may need to have much more initial capital in order to buy properties as a limited company.

Choosing directors: Usually this will be yourself but you may also include a spouse, children or a business partner.

Choose a Standard Industrial Classification (SIC) code: This defines your business activities and is very important to get right.

Assign shares: You can assign these to multiple people and it will allow them to be paid a percentage of the profits made by the company in the form of dividends.

Choose your company name: Unlike setting up a sole trader business, your company name needs to be unique – a task made a little easier by checking for available company names using the Companies House WebCheck service.

Register with Companies House: By registering your company with Companies House, you’ll also simultaneously register your business for Corporation Tax, which needs to be in place within the first three months of starting your business.

Following registration: you’ll get a ‘certificate of incorporation’, which will detail your company number and date of formation as well as acting as confirmation that your company legally exists.

Set up a business bank account: This will enable you to apply for but to let mortgages and buy property through your limited company.

Costs: The standard online registration fee is £12, and it usually takes 24 hours for your business to be registered. You can also register by post, using an agent or through third party software.

You can learn more about setting up a business in our Complete Guide to Starting a Business or check the gov.uk website for more information about setting up a limited company.

How to buy property through a limited company

The process for this will depend slightly on your current situation – if you already own property privately and are switching to be a limited company or if you already own a limited company and want to use this existing company to buy properties.

Read on to find out how to navigate each of these scenarios:

Buying property if you already own a limited company

If you already have a limited company set up and you want to buy your properties through this, it is fairly straightforward to do so. Your main challenge maybe finding a lender that allows buy-to-let mortgages for limited companies. The purchasing process may involve a series of checks by the conveyancer including verifying the company director’s identity, conducting a company search and reviewing annual returns.

Buying property if you already own a limited company

If you’re planning to expand an existing buy-to-let business and are setting up a limited company to do so, you’ll have to sell your existing properties to your new company. You’ll want to engage the help of a solicitor to take you through this process and it will involve costs discussed earlier such as capital gains tax. After that the process is similar to the above where you company goes through a series of checks with a conveyancer before the sale goes through.

Frequently Asked Questions (FAQs)

If you still have some lingering questions about purchasing property through a limited company and whether or not it is right for you, take a look at these FAQs to see if your question is answered below:

If you think that you’re going to have a large property portfolio and that you won’t need the profits immediately then a limited company may be more useful to you. However, if you’re just planning to have one or two properties, setting up a limited company to buy and manage them may be more hassle than it is worth. Probably one of the biggest things to take into consideration when answering this question is your rental income and whether this could be improved via a limited company once you factor in the tax savings of a limited company but the added management costs and setup fees you’ll incur.

If you don’t want to provide a personal guarantee to lenders, you may have to have as much as 65% to 70% in order to find a lender. Because a limited company limits the risk for you, banks are less likely to lend as they’re taking on risk instead – this is what causes such high deposit rates.

Yes, a limited company can claim mortgage interest as an allowable expense while private landlords cannot.

The tax rate your limited company pays will depend on the taxable income it earns but this will be between 19% and 25%. You can find out more about corporation tax rates from the UK Gov, click here.

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