Use our Company Start-Up Service to get a tax-smart limited company tailored to your property investment goals from just £59. 

Given the tax advantageous treatment of mortgage interest, it comes as no surprise that research by Provestor found 96% of properties purchased via limited companies have been bought using mortgages. This is significantly higher than the buy to let sector as a whole, where just 

Having a forward-thinking structure from day one can therefore help save tax in the long-term, secure lending and enable you to run your company the way you intend.

Tax trap: share & shareholder errors

Unless you have unusual circumstances, the number of shares issued for your company is typically 100 and the value of the shares is £1 each. These are often described as ‘ordinary shares’ and give flexibility for a future sale or transfer. The share allocation is split amongst the shareholders and this split will determine the proportion of profit each will receive if dividends are agreed and paid.

If you’re a husband and wife team, it might seem logical to have just two shares (i.e. one each). But it’s restrictive when it comes to releasing equity in the future and can greatly undermine how you manage and optimise tax, and therefore your long-term financial goals. 

Think about the share value too. We’ve seen people create two shares worth £1000, but this puts restrictions on your future flexibility. If you wanted to, for example, sell, gift or transfer 25% of your company, your share structure won’t allow you to do this as it only supports a 50:50 split. The preferred option is to create a larger number of lower-valued shares as doing so means you can be more granular with ownership percentages. £1 is standard practice and there are very few instances where this wouldn't work. 

Divide your company into at least 100 shares worth £1 each to give you flexibility in the future.

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There’s a buzz on social media at the moment about the growing trend to use so-called 'smart' structures, with alphabet, growth, and freezer shares.

It makes for a more complex share structure, and whilst it is a perfectly valid option, that’s only true if you have an expert involved, to properly explain the different types and their uses, otherwise it can go horribly wrong. 

Analysis of Companies House data by Provestor uncovered that 25% of companies are using smart structures without any legal paperwork in place to enable them. Should HMRC open an investigation, all the tax savings gained could be nullified, landing these companies with a large and unexpected tax bill.  

"Growth/freezer shares allow you to plan for the future growth of the company and elect which share class can benefit from the growth of the company. These should be considered when you have children or wish to introduce children to the company at some point in the future.

“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.

"In all of these cases it's absolutely essential to get the right incorporation documents in place. 

A DIY incorporation, using the standard documents provided by Companies House will not work.

 This could swiftly nullify any tax benefits you have gained. In addition, it's highly recommended you get tax advice from a professional before using these advanced structures."

The structure of the company and its shareholders can have an adverse effect on access to mortgage finance products. The age of shareholders is something to consider. 

Adding a spouse with no income, young children or grandparents to the company can impact mortgage eligibility. If this is something you're considering in your strategy it's advisable to discuss your strategy and planned structure with an expert before incorporating, as the cost of unwinding the company structure to make it fit for purpose with mortgage lenders could be thousands. 

If you need tax advice, our impartial chartered property tax advisors are here to help.

They can help you decide if a limited company is right for you, and provide advice on structuring your company to meet your investment goals.

Review your share structure with an expert

Case study - Family investment

Yasmin and her brothers pooled savings and inheritance to make their first BTL property purchase in a limited company. However, they didn't realise their share structure would put lenders off. 

"Investing as a family was something we'd spoken about for a long time. When an ideal property came up we jumped at the chance to buy. We quickly formed a limited company ourselves, having read that was the best thing to do. However, none of us realised that issuing just three shares - one for me and each of my brothers -  would stop lenders from taking us seriously. We should have gone with 100 shares in total, possibly more, and we'd have had more credibility to secure a mortgage. Unfortunately we lost out on the property we'd intended to buy and had to pay for an accountant to fix the company structure."

Chapter 3 summary

In summary, it's important to get your shares and structure sorted on day one:

Which Provestor service is right for you?

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

Does your share structure fit your strategy?

Are you maximising your tax allowances?

Are you making the most of your tax allowances?

Are your company documents fit for purpose?

Are you aware of the risks of incorporation?

Are you fully aware of the risks of portfolio incorporation?

Checklist and next steps

Limited company setup checklist and next steps for investors

The ‘DIY' tax trap

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