Expert Guide

Setting up a limited company for buy-to-let property investment

How to set up a limited company for buy to let

Are you getting ready to set up a limited company for your buy-to-let property business? If you’ve done your research, crunched the numbers and have decided a limited company is the right choice, then this chapter is for you.

We’ll cover:

  • 6 key decisions to make about your property company structure

  • How to register a new limited company with Companies House

Setting Up a Property Company: 6 Steps to Success

Before you dive into the Companies House website, there are six key decisions that you (and your business partner or spouse) need to make about your company structure.

Who will be a director of your company?

Is it just you, or are you adding your spouse or business partner too?

You’ll need to name at least one person who is over the age of 16 as a director when setting up your company. Being a director is a great feeling and experience, however, as mentioned previously, it does carry certain legal responsibilities. Whilst it’s likely you’ll ask an accountant, such as Provestor, to support you with these responsibilities, you’ll still need to ensure you have oversight as you are the one legally responsible.

Another thing to be aware of is when borrowing money through a limited company, a lender will typically take a “personal guarantee” from each company director. This means, should the company not be able to pay its debts, the directors will personally pay them. For example, should your company fall behind on mortgage repayments, the bank will ask the directors to make repayments.

Who will be a shareholder in your company?

Will you be the only shareholder or is there merit in including your spouse and children?

Go back to your property investment goals. Do you want to create a university fund for example, or perhaps pass on a property business as an inheritance? If so, it’s worth considering including your family in your company.

When setting up your company, you need to appoint at least one shareholder, who can also be a director. Shareholders have voting rights and influence over the running of the company and they’re paid dividends based on the number of shares they hold.

It’s pretty common for spouses, and even children, to be shareholders and receive a share of the company’s profits. Getting the right shareholder structure is a crucial part of ensuring your business is running as tax-efficiently as possible.

Adding your children or grandchildren as shareholders can help you to be more efficient with inheritance tax planning and planning for your company shares to increase in value. However, be careful when assigning children as shareholders if you are planning on applying for a buy-to-let mortgage. Lenders look at both directors and shareholders of a company and can look at applications more closely where children are included.

What share structure will you use?

There are different types of share structure available depending on your goals.

Typically, the number of shares issued is 100 and each share is valued at £1. The share allocation is split amongst the shareholders and this split determines the proportion of profit each will receive if dividends are agreed and paid.

It’s really important to divide your company into at least 100 shares as this gives you the flexibility to sell, transfer or gift small elements in the future.

Simple share structure / Ordinary shares

Ordinary shares are the most common type of shares used and these represent proportional ownership of a company.

Each share gives its owner one vote.

For example, a married couple setting up a property company might each have 50% shares in the company. This means that they each have equal voting rights and an equal share of any profits paid through dividends.

Complex (SMART) share structures

Some advanced investors prefer more complex share structures, often called SMART shares. These include alphabet, growth or freezer shares.

Alphabet shares

  • Alphabet shares allow a company to assign shares with different classes that have different rights.

  • The different share classes are identified by a letter - A,B,C and so on.

  • These are used to pay different dividends or to give certain shareholders decision-making powers.

For example, Chris and Kate are setting up a limited company to build a property portfolio. They have young children and want to build a fund in the property company towards their kids' uni fees. They set themselves up as A shareholders and their kids up as B shareholders - with no voting rights and no dividend payments for now. In the future, they can change the rules around the share class to give the children a share of the dividends.

Growth and freezer shares

Growth and freezer shares allow you to plan for the future and you can choose which share class can benefit from the growth of the company.

Many property investors consider freezer shares when planning for inheritance tax or adding children to the company.

Some of these might sound complex, however it’s well worth getting professional tax advice and support to ensure your company is set up with the right share structure from day one. An efficient structure, built around your goals, can make a big difference to your company’s profits and long-term tax planning.

Review your share structure with an expert

Book a limited company tax consultation and get 121 advice from a Provestor expert accountant on tax implications & optimisations plus recommendations on how to structure your company.

What are your company rules?

Another decision to make is the rules about how your company is run, also known as articles of association.

What are Articles of Association?

Articles are rules about how the company will be run which are agreed by the shareholders, directors and company secretary.

You can either write your own bespoke articles or use model articles from Companies House. Model articles tend to be ok for very basic portfolios with a simple spouse share structure.

When to use bespoke articles of association

If you have a complex share structure and business partnerships you might need bespoke articles drafted by a specialist to give you more protection. As mentioned, articles are important as they specify how the company is run and what your share class represents in relation to your investment. You can see how this is really important, if you're entering into a business partnership purchasing properties with someone for the first time.

The right protection

When you’re working with non-connected parties, such as a business partner or investor, you want to have an exit strategy in place and clear, specific rules to understand what your company can do and what it can’t do. It could be that in 12 months time you’re having an awkward conversation with your fellow shareholders and those clear cut bespoke articles have your back rather than giving room for interpretation.

Also, consider the value of your portfolio in the future - you could be looking at a seven-figure sum for your portfolio value. That’s when you don’t want to discover a mistake was made back at the start of the company.

What will your company name be?

Often, this can be the hardest part of starting your company - deciding on a name. Many property investors opt for a ‘say what it does’ approach - for instance, using your name or, if incorporating with a partner, a combination of both names plus “property”. I.e. Smith & Hall Properties Ltd

The most common sources for company names include:

  • Product ingredients: Coca-Cola

  • Founder’s name: Ford, Mercedes-Benz

  • Mix of two names: Debian, Adidas

  • Mix of two words: Intel, Microsoft, Vodafone, Verizon, Compaq

  • Acronyms: SUN

  • Invented words: Skype

  • Emotional & evocative: Apple, Virgin

  • Latin and other origins: Acer, Lego, Konica, Reebok

  • Greek and Roman gods: Asus, Nike, Oracle, Pandora

  • Characters: Starbucks, Yahoo

  • Cities, rivers, peaks: Cisco, Nokia, Adobe, Amazon, Fuji

  • Locations: Carrefour

Property words:

  • Property, properties, houses, housing, property services, property group, residential, property investments, investments, maison, homes, living

Once you have a name idea, the next stage is to check that your chosen name is available. This is an essential part of selecting an appropriate company name, as Companies House and the Intellectual Property Office will reject names that are already in use or are too similar to existing registered names.

Where will your registered address be?

Finally, you’ll need to decide if you’ll use a registered address service or your home address when registering your company. Consider your feelings around privacy. Remember that your company's registered office details will be freely available in the public domain: they appear on all official correspondence; they must be present on all letters, invoices and contracts; plus they are available on all company entries held with Companies House and other bodies.

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. At Provestor, a registered office service is available on our low-cost limited company software and advisory services.

How to register your company with Companies House

Once you’ve gotten the right advice and made key decisions on your directors, shareholders, share structure and articles of association, it's time to incorporate your company with Companies House.

You can use an agent, such as Provestor to set up your limited company for you, or you can register yourself online using the steps outlined below, or by post if you prefer.

A step-by-step guide to registering your company with Companies House

1. Head to the Register your company page on the Companies House website.

Before you start, you’ll need at least 3 pieces of personal information about yourself and your shareholders or guarantors, for example:

  • town of birth

  • mother’s maiden name

  • father’s first name

  • telephone number

  • national insurance number

  • passport number

2. Create a new Government Gateway user ID and password for your company

3. Choose a company name

4. Choose your directors and a company secretary

5. Decide who the shareholder are

6. Identify people with significant control of the company (more than 25% of the shares, or anyone with voting rights)

7. Prepare a 'memorandum of association' and 'articles of association'

A memorandum of association is automatically created online. It’s a legal statement signed by all initial shareholders agreeing to form the company.

8. Choose a registered office address

9. Check what your SIC code is

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.

It’s really important to select the right SIC code for your business activities, particularly if you are planning to apply for a buy-to-let mortgage.

10. Pay the fee and register your company with Companies House 🎉

After you’ve set up your company

Record keeping

It’s important to keep a record of the following:

  • Minutes of the first board meeting

  • Certificate of incorporation

  • Share certificates

If you're a Provestor advisory client, we handle all of this for you so it doesn’t get lost among the mountain of paperwork that comes with property ownership. We upload all of your company documents and meeting minutes to the document store in our software, for you to access whenever you need it.

You can also take care of this yourself using our new smart tax software for company landlords.

Set up a business bank account

If you’re using an SPV / limited company, you’ll need to open a business bank account in your company’s name. This is because your company is a separate legal entity from you as an individual and it is a legal requirement to keep your personal and business finances separate.

It’s a good idea to open a bank account as soon as you can after setting up your company.

The process for setting up a business company bank account may vary slightly between banks but the general requirements are:

The process for setting up a business company bank account may vary slightly between banks but the general requirements are:

  • Proof of ID, and

  • Proof of address details (usually for the past three years).

You’ll also need the following documents relating to your company:

  • Proof of company incorporation

  • In some cases, you’ll need your company UTR (Unique Taxpayer Reference) or TIN (Tax Identification Number for non-UK nationals) may also be required. Your UTR is a distinct 10-digit number issued by HMRC shortly after your company’s incorporation.

Tip: Provide the bank with your trading address (not your registered address) when opening an account. This ensures you receive important correspondence.

If you’re in the process of setting up your limited company and bank account, you might already have a few property transactions through your personal bank. It’s important to record all eligible expenses against your company’s accounts so you don’t miss out on tax relief!

Check out our blog for more tips on business bank accounts for property investors.

Register for taxes with HMRC

Once you’ve started trading (bought your first property) you’ll need to register your company for taxes with HMRC.

Provestor is one of a handful of accountancy services authorised and regulated by the Financial Conduct Authority (FCA) to connect directly to banks to download transaction data. We've passed the FCA's stringent requirements to securely connect to banks and store your data.

If you're an advisory client, our expert accountants take care of this for you.

Start up with Provestor

Whenever you’re ready, here are 4 ways we can help you start and manage your buy-to-let limited company:

  • Tax Advice. Talk through your options and increase your confidence by booking a tax consultation with our Chartered Property Tax Advisors.

  • Company Start Up. For a smooth start and to avoid costly mistakes, our expert team can incorporate your limited company, for less than you think.

  • Accounting Tax App. Keep on top of your finances in minutes, and prepare and directly submit your accounts and tax returns, with our easy-to-use property accounting app, designed specifically for landlords.

  • Advisory Service. As your portfolio expands, the complexity of your financial needs grows too. Provestor’s Advisory Service is the next step for investors seeking a deeper level of support and tax expertise.

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