This Guide is about buying property via a limited company. So ﬁrstly, what is a limited company?
A limited company is a type of business structure, which is incorporated into a legally distinct body. If an individual opts to run the property business as a limited company, the business will.
- be legally distinct from the persons responsible for running the business;
- maintain separate ﬁnances for both business and personal ﬁnances;
- own its own assets including property.
To set up a limited company, requires registration with Companies House – the process of registration is called incorporation. An individual can register his / her limited company online or via post. We can assist with the registration process on behalf of the business.
When registering, the following details will be required:
- Complete name and registered address for the
- Name and address of company directors, and company secretary (if appointed).
- Shareholder details and share
If you have a new business in mind and want to use a new UK company for this purpose, the very ﬁrst step in doing so is to understand and decide these.
A Limited Company
You can choose your own name for your company, provided it is not too close to another on the register at Companies House. There are certain names that are restricted so do check it out ﬁrst.
The last part of the name is compulsory, dependent on the type of company. Limited Companies are of two main types:
- Public Limited Company (PLC)
- Private Limited Company (Ltd)
Public Limited Companies:
A Public Limited Company, also known as a Plc is a company that is able to oﬀer its shares to the public, but it does not have to e.g. on the stock exchange. A Plc must have at least 2 directors, and a qualiﬁed company secretary. For a public limited company to start trading, it must have issued shares of value £50,000, amongst lots of extra rules.
Private Limited Companies:
A Private Limited Company, known as Ltd is quite similar to a public limited company but it can be run with just one member and it cannot oﬀer its shares to the public, even if it wants to. It has also not got the extra rules.
The registered address is the legal location of the company. It must be in the jurisdiction of registration i.e. in England or Wages for a company registered in “England & Wales”. It must also be a proper address – not just a PO box.
This address is used for service of any legal documents to the company and may also be used as a service address for Directors, in order that their private addresses are not on the open public register. We do not recommend the development address or rental property for this purpose.
Directors & Company Secretary:
Directors are the persons appointed to look after the company, and hence any property it owns. They are responsible for everything that it does, have special rules and regulations imposed upon them accordingly, and are expected to act in the best interests of the company, at all times.
In law a Director has 7 key duties:-
- To act within their powers under the company’s
- To promote the success of the
- To exercise their own independent
- To exercise reasonable care, skill & the diligence
- To avoid conﬂicts of
- Not to accept bribes or excessive beneﬁts from third
- To formally advise the company of any outside interests in business
A Company Secretary is assistant to the Directors, responsible for keeping the public records up to date; it is not compulsory for a private limited company to appoint a company secretary.
Shareholders are the owners of the company. They are often the investors too. They own shares in the company and receive dividends as the reward for their investment. They appoint the Directors to run the company for them, so they need have no hands-on involvement.
A small private company may just have one person who is both Director and Shareholder.
Share capital is the value of shares the company has issued. A company must decide how many shares it wants to issue and for each type or class of share.
- the face value (called the Nominal Value),
- the accompanying voting rights,
- the right to receive dividends and
- the right to the proceeds on a company sale or
These shares are then issued or sold to shareholders. Shareholders are due to pay the company at least the Nominal value for their shares. If they pay less, then the outstanding balance is “uncalled” and could be demanded later. If they pay more, the excess is called share premium.
The shareholders and their shares represent underlying ownership of the company and hence its assets.
The Property Business
A property purchased by a limited company is held for exploitation, to the beneﬁt of shareholders.
The company keeps the property separate from those shareholders who will then receive the beneﬁts by way of income or potentially gains on disposal.
Here are ways the company may exploit that property.
Holding of Land
Some property, usually land, may be useful just to hold. It will probably go up in value over time but may not have any day to day income. Such property will probably need regular outside ﬁnancing, even if just to keep the company active e.g. annual accounts.
The beneﬁts may be non-monetary e.g. protecting a view, or long term e.g. awaiting planning permission. However, exploitation may still be available e.g. charging rent for access or receiving grants for woodland or set aside, or selling hunting or ﬁshing rights etc.
On a regular basis, losses may be carried forward if not oﬀset against proﬁts in the current year and proﬁts will be subject to corporation tax as income from land.
Disposal of the property will generate capital gains, subject to corporation tax, or capital losses, for oﬀset against capital gains.
Property used for business, whether your own or your tenants, is commercial property, and any income, or capital gain is subject to Corporation Tax, after expenses.
There is a new annual allowance for building commercial property after October 2018, whether for your own use or investment, available each year the property is in commercial use. This allowance lasts up to 34 years and may be handed on at sale. This allowance is just an advance as corporation tax may be increased at point of sale as a result of claiming this allowance.
Do discuss the potential beneﬁts speak with our specialist landlords and property tax advisers.
If buying property to develop then this is a trading activity, with the property cost being stock and proﬁts being subject to corporation tax. As a trading activity then VAT may also become liable.
Buy to Let
Residential property that you buy, or keep, for the purposes of renting out, e.g. houses or ﬂats, is generally called buy to let. Following recent tax changes to the way interest is allowed for income tax, many investors are changing structure to ensure this income is not that of residential property income in the hands of an individual.
Rental income and capital gains are subject to Corporation Tax, after expenses, with full deduction available for interest (unlike other structures).
There are no capital gains tax reliefs.
Furnished Holiday Letting (FHL)
There are special rules available for furnished accommodation let short term for holidays etc. which then make this type of activity a trade.
Some overseas properties are forced to be operated via a Limited Company in order to fulﬁl local requirements, so do take local tax advise too.
Careful operation, with hands on involvement can earn other tax breaks as business property, if owned personally.
Do talk to us about your planned activities and how the tax can change based on your actions.
A property that you will want to hand on generation after generation could beneﬁt from the inheritance tax beneﬁts of being in a family investment company but may trigger rent assessments.
Private Use of Company Property
Care must be taken by Directors and staﬀ not to create a taxable beneﬁt in kind by using company property for personal purposes.
Do talk to us to see if your use is taxable or tax free.
All property income, net of expenses, is subject to corporation tax, annually at 19%. Trading or rental losses may be carried forward if not oﬀset against proﬁts in the current year.
At some stage you may want to sell your investment. When you sell a property then you may receive more or less than you paid for it. The diﬀerence between selling price and purchase price is your basic capital gain. The exception is if the property is part of the trading activities such as property development, in which case the gain will be classed as trading income.
Costs of buying and selling are allowable deductions from this gain before it is taxable.
If you have improved or enhanced the property these costs may also be deductible e.g. new conservatory or extension to a ﬂat lease.
There is no deduction against gains, for ﬁnance costs – loans or mortgages.
Capital gains by a company are subject to corporation tax at 19%, capital losses may only be oﬀset against capital gains, not income.
After tax funds are still in the company and an extraction strategy may be required to release these funds. Diﬀerent strategies may have additional taxes to pay.
Funds not extracted are available for reinvestment within the company, without extra taxes. We can help with preparing company accounts, extraction strategies and provide advice.
Company shares are an asset for inheritance tax purposes so may pay 40% tax on death of a shareholder. Shares in a trading company are business assets and hence may be eligible for a reduced 0-20% rate of inheritance tax. Shares in a company that only owns investment property are investment property so not eligible for relief. In a mixed company, investment property may change the nature of a trading company for capital taxes purposes, such that higher taxes are due.
Transfer of properties to a company can also incur inheritance tax, at lifetime rates, if full consideration is not received or the company is owned by diﬀerent parties.
Talk to us about planning for succession.
Stamp Duty Land Tax (SDLT)
Stamp Duty Land Tax (SDLT) is a tax paid when properties change hands. It is paid by the purchaser, based on land or property value, location and nature (residential or commercial). It is due within 14 days with penalties and interest for late ﬁling or payment.
3% surcharge is levied on additional dwellings and corporate purchases of residential property.
Companies, and partnerships that include companies, pay SDLT at 15% on properties over £500,000 – exemptions are available for certain property businesses e.g. rental, development, farmhouses and employee residences.
Discounts may also be available for bulk purchases, transfers on incorporation, and some special purpose transactions e.g. new build exchange.
|Band: Market Price £||Normal Residential Rates||Company Rates|
|0 – 125,000||0%||3%|
|125,001 – 250,000||2%||5%|
|250,001 – 500,000||5%||8%|
|500,001 – 925,000||5%||15%|
|925,001 – 1,500,000||10%||15%|
|1,500,001 and over||12%||15%|
There are diﬀerent rates for commercial property.
|Band: Market Price £||Non-residential|
|0 – 150,000||0%|
|150,001 – 250,000||2%|
Income tax is generally payable on rental income received by individuals or partnerships.
Non-resident landlords may have income tax deducted at source, including non-resident companies and trusts. However, you can request that your rental income is paid gross if you submit UK tax returns; this is especially useful when the tax due on that company income is corporation tax not income tax.
Annual Tax on Enveloped Dwellings (ATED)
A UK dwelling valued at over £500,000, owned wholly or partly by a company, is subject to Annual Tax on Enveloped Dwellings (ATED). Amounts due are a set amount per band, based on property value. The company is required to ﬁle a return annually, even if the exemptions apply.
Exemptions are available e.g. for property management or property development.
Valued Added Tax (VAT)
Rental income counts towards your VAT registration threshold. And if your company is already VAT registered then property income etc. may need to include VAT.
- Residential properties are exempt from So, you cannot charge any VAT on rent or sale of residential properties, and hence cannot claim any VAT on associated costs. The exception is the ﬁrst sale by the builder which is zero rated, enabling the builder to recover VAT on materials.
- Commercial properties, you have the choice to “opt to tax” if you want to charge VAT on income and sale, otherwise that too is exempt. If you are renting out a commercial property and your tenant is in business, it can be beneﬁcial for you to register for VAT and charge VAT as you can claim input VAT back from HMRC, on all costs, including purchase. Commercial tenants are mostly registered for VAT so it should not be a cost for However, VAT will then be due on the sale of the property too. Again, the exception is the ﬁrst sale by the builder which is standard rated, regardless of option to tax, enabling the builder to recover VAT on materials.
- Certain conversion works may be subject to 5% VAT, which can be a big saving if you can meet the criteria of changing the number of dwellings Do check with us to see if your works qualify.
- Other property income that may be subject to VAT
- Furnished Holiday Letting
- Bed & Breakfast
- Chair rent (for Hairdressers )
- Sports rights or facilities
- Timber felling
- Pitches or mooring
VAT is a very complicated area, the above is only a general guide and you need to check out the VAT status of exactly what you are supplying, do talk to us for help.
Please also talk to Limelight Accountancy before you contemplate opting a building as it is not easy to reverse.