More than 60% of all UK buy-to-let purchases made in 2020 were done through companies. In 2015 that proportion was just 15%. This sharp increase has primarily been driven by better technology allowing for companies to be created at a more affordable cost, and legal changes which can make taxes more efficient when properties are held in a company as opposed to a personal name.
While company BTL has become the standard way to invest in property, most investors do not set up their limited companies correctly to maximize on their potential investment returns.
The advantages of investing through companies are determined by the way the company is structured, the quality of its legal documentation, and the continuous management of that company.
Here, we provide a trio of blog posts that will help you navigate the sometimes complicated or seemingly long-winded process of forming and managing companies for property investment to ensure that you’re getting the absolute maximum benefit from them.
This blog should only serve as an information guide. Should you have any concerns or questions about your specific circumstances, please make sure to consult your advisor before forming or structuring your limited company.
Across this series, we’ll cover:
- The key building blocks of a company and frequently asked questions (see below)
- The differences between ‘shareholders’ and ‘directors’ and the optimal way to structure share in your company (coming out shortly)
- The legal documents required to run a company (coming out shortly)
Introducing the key building blocks of a BTL company
What’s a ‘Standard Industrial Classification (SIC) Code’, why do I need one and where do I find it?
When you form a company, Companies House, or any formation agent, will always ask you what the Standard Industrial Classification (SIC) code of your company is. This essentially tells Companies House what type of company you are running. For instance, running a medical practice, or a buy to let company.
Potential Pitfall: In order for you to secure mortgage lending on your properties, it is important that you have the correct technical information in place for your company. If you do not have the correct technical information, you may limit the pool of lenders who will be happy to give you a mortgage, or delay the process further. Your lender may want to ensure that the company is set up for the sole purpose of holding investment property in order to approve financing for a purchase.
Solution: For property holding companies, it is typically best to ensure that the SIC code is 68209. You can simply do this by specifying it at Companies House, or with a formation agent.
What GetGround offers: If you work with GetGround, this will automatically be done. It is also best that your company has limited activities. That is, the company only carries out property business specific to buy to let property and no other businesses. All companies at GetGround have the SIC code 68209.
What business bank account should I use?
In order to qualify for a mortgage for your buy-to-let investment through a limited company, you will be required by your lender to have a business account that is compatible with the mortgage lender’s requirements.
Potential Pitfall: A bank account that you hold in your personal name may not be acceptable to your mortgage provider.
Solution: Having a business account will considerably help with your mortgage lender’s requirements. They also benefit your company by allowing you to keep track of all money that enters and leaves your properties, such as mortgage payments, rental incomes and all other related activities in one consolidated place.
In order for the bank account to be compatible with mortgage lender requirements, make sure your account have features such as:
- A UK sort code
- A UK account number
- Direct Debit functionality
- Ability to accept different payment types such as CHAPS, BACS and Faster Payments
- And an IBAN and BIC for those based overseas
What GetGround offers: GetGround provides a business account with a sort code and account number to every new company formed on its platform.
Why do I need a registered office address?
A UK company is required to have a registered office address in the UK, so that any company-related mail and documents can be sent to company directors.
Potential Pitfall: Using your home address as your company’s registered office allows anyone to know where you live, as your address will be detailed next to your name on Companies House. Individuals or companies can therefore send unsolicited mail to you, or contact you directly at your home address.
Solution: In order to maintain your privacy and overall security, it is best to use a service that provides a registered office as part of their overall offering in turn allowing you to receive all company related mail safely and hassle-free.
What GetGround offers: At GetGround, we ensure that every new company has a registered office address in the UK that is separate from the company owner’s home address. All posts are scanned and uploaded to the platform, and we will alert you when that post has been received.