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3 things property investors need to know about limited company structures

Nadeem Raziq BA (Hons), FCCA, ATT
Head of Tax

Getting your business structure right could make a big difference in the amount of tax you’ll be paying. This blog post examines the different types of limited company structures for property businesses and the key reasons why it’s important to get set-up correctly.

Limited company structures differ depending on the type of business activity. When it comes to property, generally speaking you’re either investing or trading in property, or sometimes you might be doing both.

When you buy property through a limited company, you own the property investment company through shares. The company then buys the properties, the mortgages are in the company's name, and the company pays corporation tax on profits.

SPVs - what are they and why are they important?

A special purpose vehicle (SPV) is simply a regular limited company which is used solely for a particular purpose. In the case of property investment, an SPV is used to purchase and rent out properties.

Here are key 3 things to consider for your limited company structure

1 / Choose the right SIC code for your business activity

When setting up a limited company, you’ll need to choose a SIC code. A SIC code (Standard Industrial Classification) defines what a company’s business activities are. Every company must have at least one SIC code but can have up to four if required.

Why it’s important to choose the right SIC code for property companies

It can be difficult to get a mortgage for a trading business, so it’s important your company is set up correctly for the types of business activities you’ll be doing.

  • If you’re building an investment portfolio and plan to apply for a buy-to-let mortgage, lenders prefer properties to be held inside an SPV with the SIC code 68209.

  • If you’re trading in properties (aka, buying and flipping), use the SIC code 68100.

Here’s a handy table of the different types SIC codes for property business activities

Property business activitySIC codeSIC description
Investment - buying and letting (inc BTL, HMO, FHL)68209Other letting and operating of own or leased real estate
Trading - buying and selling (inc Flipping)68100Buying and selling of own real estate
Property development (inc new builds, commercial conversions) 41100Development of building projects
Property sourcing (inc deal sourcing, acting as an agent)68310Real estate agencies
Property management68320Management of real estate on a fee or contract basis
FAQ: What if I buy a property to flip then decide to rent it out instead? Can I do this in the same company?

"Technically, yes. As stated above, you can include up to four different SIC codes on your SPV and trade doing both the above. However, for a number of reasons we suggest you keep these separate - namely, the loss of entrepreneurs relief, and lending issues. There are ways around this, for example having a group structure allowing you to move properties from one company to another. We would always suggest booking a call with a tax advisor when setting such structures up."

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2 / Set-up shareholder structure for tax efficiency

If you’re setting up an SPV with a business partner or family members, you’ll need to ensure your aims are aligned, and you have clear binding agreements in place. You will need to name at least one company director when setting up your company, and at least one shareholder (you can be both).

A shareholder is someone who owns shares in a company, which usually means they have voting rights and influence over the running of the company. Shareholders are paid dividends from profits (such as selling a property or rental income) based on the number of shares they hold.

It’s a crucial part of ensuring your business is running as tax-efficiently as possible, so you need to set up a distribution of company shares that works for you.

Types of share structure for property companies:

  • Ordinary shares are the most common type of shares used and represent proportional ownership of a company. Each share gives its owner one vote per share. For example, a married couple setting up a property company might each have 50% shares in the company.

  • Alphabet shares allow a company to assign shares with different classes (identifiable by a letter), for example to pay different dividends or to give certain shareholders decision-making powers.

FAQ: Can my children be shareholders in my company?

"Yes, many Provestor clients who set up their property companies with us require their children to be added as shareholders. This can help you to be more efficient with inheritance tax planning and how your company shares increase in value. However, you must be careful when assigning children as shareholders as lenders do look at both directors and shareholders of a company. Specifically, they can scrutinise applications more closely where non-adults are included."

3 / Check your company name and address details

You’ve decided on an SPV, you know the right code for your business activity and you’re ready to register your company. One final thing before you go for it… double check your chosen company name isn’t already registered on Companies House and on the IPO trademark register. If the name you’ve chosen is already in use or too similar to an existing registered name, it will be rejected.

FAQ: What should I call my property company?

Often, this is the hardest part of starting your company - deciding on a name. Many Provestor customers use their name or, if incorporating with a partner, a combination of both names. Many often include the word ‘property’ in the company name.

Registered address

When setting up your SPV consider your feelings around privacy as your company's registered office details will be freely available in the public domain. This can either be your home address or a registered office address via a paid for service or provided by your accountant. If you decide you do want additional privacy or if you cannot register your company at home, a registered office service is invaluable. This is a service most accountants offer for a nominal fee which covers managing your statutory obligations such as maintaining registers and notifying Companies House of any changes.

Overall, setting up your property company correctly for the business activities you’ll be undertaking will help you and your accountant to be more tax efficient and reach your goals sooner.

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Nadeem Raziq BA (Hons), FCCA, ATT
Head of Tax

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